Real Estate Investment Funds: Financial reporting - Alfi

what options do FOREFS have in respect of the issues identified above?
The above factors negatively impact the ability to calculate an accurate Fund NAV of
a FOREF. Broadly speaking, management of such FOREFs has three main options in
respect of dealing with these with regard to the calculation of Fund NAVs and fund
financial reporting:
1. Delay reporting of
NAVs/financial
statements to collect
more up-to-date
information
a. Management should strongly consider
delaying reporting in order to collect as much
possible up-to-date and accurate information
from "investee" funds on which to base the
valuations. This may include, for example,
delaying reporting until audited financial
statements of the "investee" funds have been
received so that more comfort exists with
regard to valuations and going concern/
liquidity issues facing the "investee" funds
and, therefore, management of such funds
have more support to base their conclusions
for the Fund NAV. Further examples of
additional information that could be received
are listed in Chapter VIII.1 above.
b. In such cases, management should be aware
of their deadlines to deliver reporting, both
on a contractual and regulatory basis. For
example, SIFs in Luxembourg are normally
required by law to deliver their audited
financial statements within six months of
their year end, so any delay beyond this date
may require an approval from the investors
and the CSSF.
2. Suspend issuance of
the FOF NAV
a. Management may choose to suspend
issuance of the FOREF NAV until such time
that management believes that the Fund
NAV can be produced with an appropriate
level of accuracy.
b. If management judges that, due to current
market conditions, it is not possible to
calculate a reliable Fund NAV then
consideration may need to be given to
suspending the FOREFs NAV. This is
particularly important with regard to
open-ended funds where Fund NAVs not
only are used for information purposes but
are also used to price issues and redemptions
and thus effect the distribution of value in
the FOREF between investors.
c. In these circumstances the following options
could be considered to the extent that they
are commercially viable and in accordance
with the FOREFs governing documentation
and regulatory requirements.
d. Deferring issues and redemptions until a
Fund NAV (pricing NAV if different) can be
reliably calculated. It may well be, however,
that this is not commercially viable – the
fund may need, for instance, to contribute
committed capital to investee funds to
protect value and avoid defaulting; investors’
capital may need to be drawn to do this.
e. Arranging short term funding in order to
finance operations, to avoid the need to price
new issues of units/shares.
f. Issuing/redeeming units but delaying pricing
these transactions until a more reliable Fund
NAV is available. This is a possible solution,
subject to the regulatory framework of the
fund, where management wants to draw
capital from investors and also provide them
with liquidity.
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