The manager should document a policy on secondary transfers setting out which factors it will take into account when considering any transfer request. The policy should explain how fairness to all investors is achieved, including how any potential conflicts between primary and secondary issues are dealt with.
The manager should identify their anti-money laundering or “know your client” requirements for any potential investor. This should reflect the requirements of all those regulated bodies involved in the administration or management of the vehicle (including trustees, depositaries and administrators).
The manager should state within the constitutional documents if a confidentiality agreement is required for the release of information to a third party (including potential investors, placement agents and third party trading platforms) and, if so, the manager should make a standard confidentiality agreement available for the respective parties’ use at all times. A clear definition of “qualifying investor” should be incorporated into the constitutional documents identifying any specific restrictions in respect of domicile, financial strength, type of investor (e.g., any restrictions on competitors), minimum or maximum holding.
If pre-emption rights for holders are required by the founding investors, they should be drafted on the basis of a right of first refusal during a limited period from service of notice. In the event that investors choose not to exercise their rights, the selling investor should be free to sell its interest in the open market, within an agreed range of the original offer price during an agreed period.
A draft transfer agreement should be provided at launch, incorporating the minimum representations and warranties required from the relevant parties on any transfer, subject to any variations reasonably required by the manager from time to time. It is acknowledged that the final form of transfer agreement will be negotiated by all parties including the buyer, selling investor and the manager.
Investors should carefully review the constitutional documents and the liquidity protocol document or section to ensure that both documents suit their needs.
The non-executive or compliance officer, if any, should oversee the establishment of a fair pricing mechanism for the issue and redemption of units and an appropriate secondary market transaction framework.
The manager should maintain an up-to-date protocol on liquidity mechanisms for the vehicle including its policy on secondary transfers. The policy should explain what services the manager will perform in relation to any secondary transfers and any fees or expenses to be charged by the manager or the vehicle. It should also state how the manager will interact with any placement agent appointed by the selling holder and any third party trading platform.
The manager should facilitate secondary trading by its existing investors (whether the trade is executed by the manager, via a broker or otherwise) by:
- Using all reasonable endeavours to co-operate with any investor wishing to sell its interest, subject to the agreement of reasonable representations and warranties to reflect the services being undertaken in the sale by the manager and any fees agreed between the parties for those services;
- Providing regular reports to investors which contain the information set out in 9.3.7 Reporting Requirements;
- advising all holders as soon as reasonably practicable when it becomes aware of any equity available on the secondary market. The manager is not obliged to release details of the seller.
If the vehicle does not have external valuations carried out at least quarterly, then the manager should be under an obligation to disclose all reasonable information required by a valuer and other financial advisers appointed by the selling investor and/or potential investors, subject to all parties entering into a confidentiality agreement restricting the use of the information. It is reasonable for a manager to refuse consent to a transfer under certain valid circumstances. These could include:
- if it is prejudicial to the tax status of the vehicle or its investors;
- if it affects the regulatory status of the vehicle;
- if, in the manager’s opinion, the proposed transferee has insufficient financial strength to meet any undrawn commitments or is unwilling or unable to provide acceptable guarantees;
- if the proposed transferee is unable to comply with all reasonable anti-money laundering requirements of the manager;
- if the proposed transferee is not a “qualifying investor” as defined.
In the event the manager becomes aware of any information which, in its opinion, renders any document or announcement materially inaccurate, incomplete or misleading or results in the failure to comply with any obligations in the constitutional documents, the manager may require the selling investor to cease distributing the offending document or announcement and/or make a correcting announcement.
The selling investor should be able to communicate with potential investors, subject to certain consents and indemnifications:
- subject to appropriate consent, be permitted to provide any potential investor introduced by an existing investor or its adviser with the information set out in the most recent annual and interim report and the SDDS. The manager should be indemnified against any claims by any third party, although it is reasonable for the existing investor to expect the manager to co-operate in the disclosure of material to assist in the verification of any marketing material that the investor produces;
- indemnify the manager in respect of any third-party costs incurred by the manager or the vehicle in facilitating any transfer request;
- indemnify the manager and the vehicle in respect of any costs arising out of any misrepresentation in respect of the vehicle in any selling documents.
The manager should take specific steps when facilitating or arranging secondary trading in the manager’s vehicle:
- inform all holders of the services that it is willing to provide for facilitating a secondary market in the vehicle and the fees charged for these services;
- publish a policy statement on secondary transfers setting out what factors it will consider when considering any transfer request. For open end vehicles the statement must explain how fairness to all investors is achieved, including how any conflicts between primary and secondary issues are dealt with. This should be freely available to existing and potential investors at all times;
- provide potential investors with reasonable access to its staff to explain the strategy of the vehicle and to arrange access to properties where appropriate subject to reimbursement of appropriate costs;
- advise the seller if any potential investor or group of potential investors would be considered unacceptable as a qualifying investor if requested to do so;
- provide a standard confidentiality agreement which it finds acceptable on request or, if appropriate, provide input into a confidentiality agreement prepared by the selling investor. The manager shall act reasonably in dictating the terms of any such agreement;
- maintain a statement of anti-money laundering requirements identifying the information required from any new investor or transferee. The statement should reflect the requirements of all those regulated bodies involved in the administration or management of the vehicle, such as trustees and administrators, to ensure that the requirements are comprehensive;
- treat all information provided to it on potential investors as confidential and not disclose it to any third party without consent unless required to do so by law;
- take all reasonable steps to ensure that the register of investors is updated without delay once in receipt of all valid documentation.
The compliance officer should oversee the activities of the manager in relation to secondary market transactions, to ensure they are in compliance with the law and constitutional terms of the vehicle.
The selling investor should:
- inform the manager of its intention to market its interest or part of its interest in the vehicle;
- prior to commencing any marketing of an interest in a vehicle, review the constitutional documents to ensure it is fully aware of its rights and obligations;
- consult with the manager on the acceptability of potential investors at an early stage;
- investigate fully any selling restrictions imposed in any jurisdiction in which it intends to sell;
- ensure that any advisers instructed to act as placement agents on its behalf are properly authorised to act in that capacity in the countries in which the selling investor intends to market its interest;
- ensure that any marketing material used for the sale of its interest and any distribution of the material is in accordance with the terms of the vehicle’s constitution and all relevant regulatory requirements;
- take all reasonable steps to restrict the marketing of its interest to “qualifying investors” as defined in the vehicle’s constitutional documents;
- in any public statements regarding the sale, make it clear that it is speaking in its capacity as an investor and its comments do not necessarily reflect the views or beliefs of the manager and other investors.