Real Estate Investment Funds: Financial reporting - Alfi

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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. 36
3. Continue to produce Fund NAVs/financial statements within normal timeframes a. If management does not wish to delay the issue of Fund NAVs/financial statements then consideration will have to be given to the adequacy of the information received as regards to producing accurate reporting. b. Where this is not sufficient, given current market conditions, management should seek additional information so as to base ownvaluations of "investee" funds on as much data as is available. This could take the form of increased monitoring calls with management of "investee" funds and further detailed analysis of trends in the geographical markets and sectors in which the "investee" funds invest. c. It is the primary responsibility of management to ensure that sufficient, reliable data is available and has been used in calculating the Fund NAV. d. Given the current market volatility compounded by time lags in receiving information in a FOREF environment, and especially if the NAV is used for pricing issues and redemptions, and thus affects the distribution of value in the fund between investors, careful consideration needs to be given as to whether this approach is appropriate. The Valuation Policy of the FOREF should specify whether any adjustments may be made and under what circumstances. e. In any of the above scenarios, management should also provide additional disclosures in their financial statements with respect to valuations and, if necessary, the "going concern" status of the FOREF. Examples of the information to be disclosed regarding the valuation of "investee" funds may include: a discussion of the uncertainties in the valuations based on the review of audited financial statements, any caveats made by the valuers of the "investee" funds in their reports sensitivity analysis of valuations and a discussion of the uncertainty in respect of the property types and geographical markets that the "investee" fund is exposed to. 37
Page 1: guidelines Real Estate Investment F
Page 5 and 6: table of contents chapter I - PROPE
Page 7 and 8: property valuation chapter I
Page 9 and 10: y the seller. The assessment of the
Page 11 and 12: valuation uncertainty chapter II
Page 13 and 14: 3. How recent should a valuation be
Page 15 and 16: accounting chapter III
Page 17 and 18: discussed above in Chapter III.2.c
Page 19 and 20: understand the nature and potential
Page 21 and 22: f. INREV guidance states that in ca
Page 23 and 24: net asset value calculation chapter
Page 25 and 26: financial statements and disclosure
Page 27 and 28: 3. What are the typical contents of
Page 29 and 30: 1. What specific issues arise with
Page 31 and 32: In general, a FOREF invests in illi
Page 33 and 34: What information in respect of inve
Page 35 and 36: chapter IX how does increased valua
Page 37: chapter X what options do FOREFS ha
Page 41 and 42: In general, auditors will have to p
Page 43 and 44: Glossary of terms 91/75 The IML Cir

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