Unit pricing and dealing (subscription and redemptions)

A - Minimum compliance

  1. Disclose to investors: 
    a. Confirmation the fund is priced at the ‘Standard NAV’ for all investors. If not, an explanation of the key differences should be provided (see AREF Fund Pricing Guidance).
    b. The accounting rules being applied eg. IFRS, UK GAAP etc.
  2. Fund prospectus, documentation and placement documentation should contain clear and explicit description of subscription and redemption policies. Such disclosure should include:
    a. Subscription process and expected timeframe for an investor to become fully invested
    b. Redemption process and expected timeframe for an investor to be fully disinvested
    c. Full details of how subscription/redemption prices are calculated, and by whom including the basis of valuation for the real estate assets and any special instructions given to the valuer.
    d. All subscription/redemption premiums/discounts, the size of the subscription/redemption queue, changes in market prices and timing of redemptions.
    e. Details of multiple unit classes with different terms (subject to confidentiality)
    f. Whether subscription/redemptions are revocable and the basis of such decisions.
  3. Managers must clearly disclose:
    a. The circumstances under which the subscription and redemption process or pricing could be  varied and what variations are permitted by the manager/fund.
    b. The circumstances where the subscription or redemption policy and process may be changed by the manager without requiring consent of the investors.
  4. Subscription/redemption policies should be
    a. Fit for purpose and able to meet demands of the entire property cycle for the relevant fund strategy.
    b. Only capable of amendment with investor consent, or notification as applicable.
  5. Communication between the manager and investors or their representatives should be in the form of:
    a. Clear and comprehensive subscription/redemption policies which are readily supplied to existing and potential investors, even if the policies are also specified, in whole or in part, in the original fund documentation.
    b. At least quarterly communications and more frequently at times of high subscription and redemption activity.
    c. Reporting to investors which should include details of:
    • i. Liquidity, current and potential, taking into account the purchase/sale transaction pipeline by level of certainty.
    • ii. Current subscription and redemption queues by amounts and timescales should be reported or shared on request.
    • iii. Investor concentration by unit class, in the case of funds with multiple unit classes having differing terms.

 

B - Best practice

Reporting to new and existing investors should explain:

  1. The liquidity (or illiquidity) of the underlying investments within the portfolio, including the percentage of the fund invested in closed-ended structures, the terms for liquidation of those assets and any consents required.
  2. If an investors’ waiting list is in operation. Each fund is encouraged to adopt and disclose clear policies detailing the approach to managing the investors’ waiting list for both subscriptions and redemptions, and explain any circumstances where the fund has been unable to meet its subscription and redemption policy processes or obligations.
  3. How many redemption notices were received and not settled at the date of the report. Information should be presented in such a way that investors can clearly see current and future subscription and redemption liabilities of the fund.
  4. If appropriate, confirmation that the fund’s bid and offer prices have been determined in accordance with AREF’s Fund Pricing Recommendations. If not, an explanation of the key differences should be supplied.