Within any subscription agreement signed by investors when entering the vehicle, there should be a specific acknowledgement that they fully understand the liquidity restrictions in the fund documentation which should be written in a clear and comprehensive manner.
For open end vehicles the timing for issuance and redemption of units should reflect the independent valuation cycle for the assets. This will help to ensure that all investors are treated fairly.
Any adjustment to the basis of valuation adopted by the manager which impacts the price of subscription or redemption should be disclosed to all investors in the vehicle documentation, including the rationale for the adjustment.
The pricing mechanism for the issue of new units should, subject to local laws and regulations, be fair to all investors and be clear and unambiguous.
New issues should be based on a price determined using an up-to-date independent valuation of the underlying real estate assets and an up-to-date assessment of all other assets and liabilities of the vehicle.
Any special assumptions used by either the manager or the independent valuer should be disclosed to all parties.
The manager should maintain its anti-money laundering or “know your client” requirements for each type of investor that may subscribe to the vehicle. This should reflect the requirements of all those regulated bodies involved in the administration or management of the vehicle (including trustees, depositories and administrators).
The issue of new equity (or debt investments) into a vehicle would normally be based on either the NAV at the time or at cost with a form of equalisation payment from those investors who commit after the first close of the vehicle.
In the event that the NAV approach is used, managers should:
- identify any subscription premium that is payable and explain the approach to its calculation;
- ensure that the NAV is based on an up-to-date independent valuation of the underlying real estate assets;
- identify any special assumptions used by either the manager or the independent valuer in the calculation of NAV.
In the event that the cost plus equalisation approach is used, managers should provide a worked example to show the calculation of the equalisation amount to the incoming investor.
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