The legislation does not specifically ban certain investments but instead may restrict how an asset can be used, who it can be purchased from and why it is held.
The investment restrictions are:
- Investments must be on an arm’s length (i.e. commercial) basis.
- The fund must not lend or provide financial assistance to members or relatives.
- Borrowing is only allowed if it meets the specific rules for limited recourse borrowing.
- Cannot acquire assets from members or related parties unless one of the exemptions (discussed later).
- In-house assets cannot exceed 5% of the fund’s total balance (discussed later).
The penalties for breaching these rules are very high. They may include tax penalties, fines or even jail sentences.