Co-mingled funds

Legal assistance paper

All reasonable efforts have been made to ensure the accuracy of this information at the time the advice was produced. However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments. They do not constitute formal legal advice or create a lawyer- client relationship. To the extent permitted any liability is excluded. Those consulting the database may wish to contact LRI for clarifications and an updated analysis.

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Date produced: 10/12/2010

1. What does “co-mingle” mean?

2. Does the “co-mingling” reference in the finance text below apply solely to investments or does it also apply to loans?

“The trustee shall hold the assets of the [Global Climate Fund] separate and apart from assets of the trustee, but may co-mingle for administrative and investment purposes with other assets managed (?) by the trustee.”

Summary:

The dictionary definition of “commingle” is “ to mix or blend different elements.” “Co-mingle” is an alternative spelling that has the same meaning, however we note that “commingle” is used more frequently in the context of finance. In the context of the text set out in the query, commingle is used to refer to the mixing of assets.

The extract of the text above deals only with the rights of the trustee over the funds it holds. It does not say anything in relation to the form of funds (whether by loan or not) paid into the Global Climate Fund by Parties or distributed by the trustee to the relevant parties. The question of whether or not funds can be co-mingled therefore has no direct bearing, in and of itself, on the risks associated with including loans as part of a finance package.

Advice:

1. The dictionary definition of “commingle” is “ to mix or blend different elements.” “Co-mingle” is an alternative spelling that has the same meaning, however we note that “commingle” is used more frequently in the context of finance. In the context of the text set out in the query, commingle is used to refer to the mixing of assets.

2. The extract of the text above deals only with the rights of the trustee over the funds it holds. It does not say anything in relation to the form of funds (whether by loan or not) paid into the Global Climate Fund by Parties or distributed by the trustee to the relevant parties. The question of whether or not funds can be co-mingled therefore has no direct bearing, in and of itself, on the risks associated with including loans as part of a finance package.

In relation to funds held by the trustee, the trustee would be entitled to use these funds for its own administrative or investment purposes and for these purposes it would be entitled to ‘co-mingle’ or mix these funds with other monies held by the trustee (potentially completely unrelated to climate).

This kind of arrangement is not uncommon where the trustee of a fund is a multilateral bank such as the World Bank.

For example, The Global Fund to fight AIDS, Tuberculosis and Malaria (GF) has as its trustee the World Bank. Section X.C.1(a) of The Framework Document of the GF sets out the trustees responsibilities in relation to the collection, investment and management of funds. In particular, it states:

“private donations would be channelled to the Trustee, commingled with the public sector donations, and the Trustee would invest all the funds together.”

Disbursement of the funds is dealt with separately.

Similarly, the fund for the Consultative Group on International Agricultural Research (CGIAR Fund) is administered by the World Bank, as trustee. Annex 2 to the Form of Contribution Agreement between donors and the trustee of the CGIAR Fund has language relating to co-mingling. Section A.3 of Annex 2 states:

“3.1 The Contributions shall be accounted for as a single trust fund and kept separate and apart from the funds of the World Bank. The Contributions may be commingled with other trust fund assets maintained by the World Bank.

3.2 The Contributions may be freely exchanged by the Trustee into other currencies as may facilitate their transfer.

3.3 The World Bank shall invest and reinvest the funds in the CGIAR Fund pending their transfer in accordance with the World Bank’s applicable policies and procedures for the investment of trust funds administered by the World Bank. The Trustee shall credit all income from such investment to Window 1 of the CGIAR Fund.”