Guidelines

The investment manager should act in the best interests of both existing and new investors that have committed undrawn capital.

When making investment decisions, the investment manager should not pursue transactions which merely optimise its own outcomes, for example through enhanced management or performance fees, but should consider the best interests and reasonable expectations of both existing and committed investors.

The constitutional documents of the vehicle should also clearly state how the interests of those investors who have committed capital but whose capital is undrawn are fairly treated.
 

The investment manager should set out in the constitutional documents of the vehicle the terms by which equity (or debt investments) is issued, transferred and redeemed, to ensure fair treatment of investors.

The investment manager should clearly state in the constitutional documents of the vehicle how equity (or debt investment) is issued and redeemed. In the case of closed end vehicles, the issue of equity (or debt investment) is likely to be through one initial or multiple closings where a number of investors subscribe at the same time, with distributions occurring towards the end of the vehicle’s life, as it sells its assets and winds down. Investors may have the ability to sell their investment on the secondary market but would not normally be expected to do so. The investment manager should clearly articulate the role that it provides in respect of secondary transfers, including any fees charged or interaction with third party trading platforms or placement agents.

In the case of open end vehicles, the process of issue and redemption of equity (or debt investment) would be on a periodic basis. This may be annually, quarterly, monthly or daily. The method of valuation of the equity (or debt investment) should be clearly set out, including the underlying valuation and accounting principles applied (see G09 for open end fund pricing best practices).

Read more at inrev-guidelines">Liquidity Module.
 

The investment manager should consider the legitimate interests of other stakeholders alongside those of investors.

When establishing a new vehicle, the investment manager should identify and understand the interests of all major stakeholders with which the vehicle transacts and interacts. These interests should be reflected in the objectives and operations of the vehicle. The investment manager should regularly evaluate relevant outcomes and communicate to investors and other stakeholders as appropriate. In addition to the investors, the following parties may, amongst others, be regarded as stakeholders:

• Employees;
• Customers and tenants;
• Lenders;
• Regulators;
• Suppliers;
• The business communities in which the investment manager and investors operate.

In addition, there are other types of stakeholders related to broader and social impacts which are considered under Principle 7.
 

The governing body should scrutinise any proposed changes to the vehicle, acting in the interests of all investors.

The governing body of the vehicle has a specific duty to ensure the interests of all investors are properly considered and advise on whether any proposed changes to the vehicle structure, strategy or constitution are in the best interests of all investors. The role of independent non-executive directors is particularly relevant in this context. For instance, their analysis of the merits of any proposed changes to constitutional documents or other material transactions should be supported by any reasonable resources at the expense of the vehicle, to enable them to properly fulfil this role.

Members of the governing body of the vehicle, including any independent non-executive directors, should have (i) adequate veto and approval rights on all important governance matters, (ii) access to sufficient high-quality information to make informed decisions, (see also Principle 6), (iii) the ability to convene meetings.
 

For open end real estate vehicles, the investment manager, together with the governing body of the vehicle, should ensure effective design, operation and governance of pricing that represents the best interests of investors.

Allocating transaction costs between different vintages of investors in open end real estate vehicles and protecting existing investors against dilution is a complex matter, subject to different circumstances and events. The investment manager should adopt a set of pricing governance best practices to drive increased transparency and to ensure pricing policies are operated effectively in the interests of investors.

Read more at fund-pricing">Open end fund pricing best practice.
 

The investment manager should ensure that the vehicle, through rights established in its constitutional documents, can react in a timely and appropriate way to external circumstances and significant events.

Exceptional external circumstances and significant events within the lifecycle of a vehicle should be anticipated and considered in the vehicle’s design and constitutional documents. These include exceptional economic or environmental circumstances, which may lead to a range of situations such as valuation uncertainty and breaches of covenants or liquidity issues that may require actions such as (i) deferral or suspension of trading in the vehicle’s equity, (ii) restructuring of the vehicle or (iii) liquidation of the vehicle (see G38 on communication to investors outside of the regular reporting obligations).

Procedures relating to analysis, decision- making and consent should be adequate and clearly documented. Outcomes should enable actions to be taken on a timely basis and in the best interests of investors as a whole (see G29 and G30 on material decisions requiring specific involvement or consent of the investors).
 

The investment manager should ensure that the liability of an investor is limited to its commitment  to the vehicle. 

The investment manager should ensure that the liability of an investor does not exceed its total commitment. The constitutional documents of the vehicle should contain an explicit provision dealing with such liability.
 

The investment manager should establish and maintain an up-to-date register of related-party transactions and potential conflicts of interest and relevant mitigating circumstances.

The investment manager, in collaboration with the governing body of the vehicle, should establish a policy to manage related-party transactions and conflicts of interest. This should be adapted to the nature and scale of the vehicle. Related-party transactions and potential conflicts of interest should be documented and reported to the governing body of the vehicle and communicated to investor representative groups as appropriate.

Related-party transactions and potential conflicts of interest may arise in different circumstances, such as but not limited to:

• The investment manager (or another vehicle/party affiliated with the investment manager) competes with the vehicle;
• The investment manager (or another vehicle/party affiliated with the investment manager) buys or sells assets from/to the vehicle or co-invests with the vehicle;
• The investment manager provides a service for secondary transfers between investors;
• The investment manager establishes contracts with related entities involved in the administration and operation of the vehicle. The allocation and arm's length nature of such fees and expenses for the contracted services are a consideration;
• The investment manager seeks to sell its interest in the vehicle or there is a material change in ownership within their organisation;
• The vehicle contracts for services with third-party service providers such as valuers and auditors that are incompatible with independence considerations.

The investment manager and its affiliates should adopt a methodology that ensures that investment opportunities are fairly allocated to the vehicle.

An investment manager may advise and provide investment opportunities to a range of vehicles with different investor bases. The investment manager should establish policies and procedures to ensure that investment opportunities are fairly allocated between such vehicles. Such an allocation approach should have appropriate oversight to ensure fair outcomes and be transparent to respective groups of investors. Different allocation methodologies may be considered, such as vintage, degree of alignment with investment strategy or a pro-rata approach.
 

The investment manager should consider co-investment in vehicles in which they are active.

For certain types of investment vehicles, a co-investment by the investment manager is an appropriate way to align interests with the investors. Such co-investment could consider key management and employees as well as other concerned entities. The amount and terms of such co-investment should support a meaningful alignment of interest.
 

The investment manager should have a policy in place defining how co- investment opportunities by investors in assets held by the vehicle are treated.

If certain investors have a contractual right to co-invest alongside a vehicle in certain assets, the investment manager should have a policy in place to define how key contractual terms, such as management and performance fees, should be allocated between the vehicle and co-investment entity to ensure that the other investors in the vehicle are fairly and transparently treated.
 

The investment manager should design management and performance- related fees that are aligned with the interests of investors.

Such fees should be aligned with the interests of investors and should incentivise the investment manager to behave in a manner consistent with the risk profile of the vehicle. The remuneration and fee structure of the investment manager should not encourage the investment manager, its staff or the management board members of a vehicle to act in their in interest, or to take risks that are not in keeping with the strategy and the risk appetite that has been agreed (see G33 on fee transparency).

See the inrev-guidelines">Fee and Expense Metrics module for specific guidelines on fees and costs.