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We have undertaken a number of client projects over the year and have been as busy as ever. At the start of the year, the focus was very much on resolving challenges for existing funds, although the emphasis changed in the Autumn with the return of new fund projects. We have started undertaking work on fund subscription pricing, following the publication of the new AREF / INREV guidelines, more on which below.
John’s three non-executive roles have also continued, as chair of the Supervisory Board of the UBS UK balanced fund, Triton, as the independent chair of the Advisory Committee of the Urban Splash Residential Fund and as non-executive chairman of Ginkgo Advisor Limited, the UK subsidiary of the Banque Edmond de Rothschild backed specialist brownfield investment firm.
Contributing to the industry
As in previous years we have continued to be actively involved in industry initiatives and events, particularly through the Association of Real Estate (AREF), the Investment Property Forum (IPF), Urban Land Institute (ULI) and the Institute of Chartered Accountants in England & Wales (ICAEW) Construction & Real Estate Community.
John is a member of the AREF Public Policy Committee, chairs the CTI & Expense Ratio Working Group, has been one of the AREF representatives on the AREF / INREV working group on open-ended fund pricing and has been part of the working group drawn from members of the Public Policy and ESG Committees to respond to consultations on EU and UK ESG regulation relevant to real estate funds.
Open-ended fund pricing
The AREF / INREV working group on open-ended fund pricing has been working since 2017. It published its draft proposals in 2020, with the final guidelines coming into effect in may 2021. John was a member of the working group and drafted the UK text of the guidelines for AREF.
For both classic dual pricing (typical in AREF funds) and capitalisation & amortisation(usually associated with INREV NAV), the intention is to move to pricing that is more reflective of the commercial circumstances of the fund. In both cases the key component of the subscription premium is real estate transfer tax such as UK Stamp Duty Land Tax. The key proposals to reflect this are:
For the dual pricing method, adjusting the pricing to reflect the actual cost of deploying capital so that actual tax costs are reflected. This is for specific capital raises and for ongoing pricing;
For the capitalisation & amortisation method, adjusting the amortisation period for acquisitions used to calculate trading NAV to reflect the anticipated hold period for assets. For evergreen funds, the assumption is 10 years. For reporting NAV, the amortisation period for acquisition costs remains at 5 years.