Guidelines

Act lawfully and ethically

All parties involved in the valuation process should strive to meet the highest professional standards of ethics and integrity while complying with applicable laws and accounting and valuation standards. Acting ethically goes well beyond mere compliance with the law and written contracts. While estimating property market values, external valuers, investment managers and the governing body of the vehicle should operate under a duty of care and should act ethically and with integrity towards investors and other stakeholders.

Respect for the law and compliance with the constitutional terms of the vehicle, which should contain details of how such market values should be established, provides a basic framework for property valuation. Acting ethically entails the external valuer, the investment manager, the governing body of the vehicle and other relevant actors understanding and adapting how they conduct themselves to ensure the achievement of appropriate and unbiased market values.
 

Act in the best interest of investors and consider other stakeholders

Identifying and understanding the interests of stakeholders so far as they relate to the valuation process and outcomes may vary from vehicle to vehicle. For instance, in an open end fund, estimates of value are generally used to establish pricing and the remuneration of the investment manager.

In a closed end fund, estimates of value are more orientated towards performance reporting during its lifetime. When establishing an investment vehicle, the design of the property valuation process and the parties involved including the frequency, responsibilities and oversight of the process should be carefully considered.

These elements should be aligned with the interests of investors and other stakeholders, as well as the nature and style of the vehicle concerned. In its actions and conduct in operating and overseeing the valuation process, the investment manager together with the governing body of the vehicle should constantly strive to achieve alignment of interests with investors and other stakeholders, while avoiding conflicts of interest that cannot be effectively managed. Given the fact that the investment manager appoints and oversees the work of independent external valuers and provides them with much of the information used to form an opinion of value, it is particularly important from a governance perspective that the integrity of the valuation process is carefully examined on a regular basis by both the investment manager and the governing body of the vehicle.

In addition, it is important to consider the role of the external auditor and the outcome of their work that provides a rigorous level of assurance about the quality of the valuation process. At the same time, the integrity of the external valuer’s work in providing an independent, objective and unbiased opinion of value is key to the overall process and ultimately to its alignment with the best interests of investors and other stakeholders. It is important that the external valuer has a clear understanding of the scope of work and receives from the instructing party (either the investment manager or the investor) confirmation of the purpose of the valuation when agreeing on the appropriate terms of engagement.

The external valuer should identify and avoid any potential conflicts of interest that cannot be effectively managed. Conflicts of interest can arise from the valuer’s contractual fee and other arrangements with the investment manager as well as potential conflicts resulting from other services provided by related parties and associates of the external valuer and its organisation, such as brokerage.
 

Act with skill, care and diligence

The investment manager should ensure that its valuation function related to the investment vehicle is conducted prudently with diligence and care. It should also ensure that all parties involved, including its own personnel, the members of the governing body and related service providers behave with the highest standards of conduct and professionalism.

The investment manager should engage personnel who possess specific knowledge, skills and experience related to property valuation. It should constantly strive to apply best practices in arranging and supervising the valuation of property related to the vehicles it manages. The investment manager should effectively engage with the governing body of the vehicle to enable it to effectively monitor its activities related to the valuation function.
 

Design and operate an adequate oversight and control framework

The investment manager, in collaboration with the governing body of the vehicle, should design and operate an effective supervisory, decision-making and control framework that adequately addresses the specific risks related to an investment vehicle. Such a framework, which extends to key service providers such as external valuers, needs the involvement of sufficiently qualified persons, who should possess the necessary skills and knowledge. The qualification, appointment and supervision of the external valuer should be one of the main focus points of the oversight and control framework.

The oversight and control framework, as well as meeting the legal and regulatory requirements of the vehicle, should ensure that the scope and frequency of the property valuation process fairly reflect the reasonable expectations of investors and the context of market circumstances.
 

Be transparent while respecting confidentiality considerations

The investment manager should be transparent and disclose accurate, balanced and clear information related to the valuation process and its outcomes, on a timely basis. The investment manager should not only disclose information when there is a legal obligation to do so, such as when it is defined in the constitutional documents of the vehicle but should also proactively communicate and engage with investors and certain key stakeholders where the matter or information is considered relevant.
 

Be accountable

The investment manager, together with the governing body of the vehicle and other related service providers, should be accountable to investors for the execution of their responsibilities in relation to the valuation process given their roles and functions. This implies a duty of care, acceptance of scrutiny, and a reasonable level of liability.
 

Be sustainable: Evaluate and manage sustainability impacts

The investment manager should consider sustainability factors that potentially impact the value of a property as part of the overall valuation process. The investment manager should provide or facilitate the provision of a reliable set of information and data relating to the current and future sustainability status of the property on which the external valuer can base their work. Appropriate terms of engagement should be agreed upon with the external valuer to determine their role and the scope of the instruction in terms of sustainability reporting. Investment managers should summarise and disclose to investors the results of this process in a clear and transparent way. This will help investors better understand the economic impact of environmental and social considerations on the value of their portfolio.