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- How liquid were the fund’s underlying assets?
ii) How well did the manager cope with the decision as to whether or not to suspend redemptions?
- Did the manager implement a decision-making process that ensured the engagement of a broad range of stakeholders?
- How good was communication?
- Did the investors agree with the decision taken?
iii) Did the manager learn from the experience and are the changes introduced continuing?
Since the report was published, there has been an increasing acceptance by institutional investors of more limited liquidity in open-ended funds to reduce volatility. Many open-ended funds have lengthened the time available to meet redemption requests and made other changes to redemption queuing arrangements. It has also been common for managers to introduce more dramatic arrangements to deal with high levels of redemptions, for example by introducing fixed gates on the volume of redemptions to be met in a quarter or a year. This also has potential drawbacks so there is also interest in more flexible arrangements with the introduction of independent supervision to take some of the subjective elements out of the hands of the manager.
Independent supervisory boards
As mentioned above, management of the redemption process can be a highly subjective process. One possible approach suggested in the report three years ago was the use of independent supervisory boards.
This can also be beneficial in a number of other circumstances. The original report for AREF concluded, "greater use of independent representation as an important element of corporate governance. It is considered that this would help to minimise the perception of conflicts of interest." Since the report, AREF has undertaken further work in this area. At the AREF / IPF seminar last year, Howard Meaney of UBS Global Asset Management outlined that the UBS Triton Property Fund was to have an independent supervisory board, which has now been established and which I now chair.
I hope that the successful operation of this board, and the similar board already in place at the Hermes Property Unit Trust (HPUT) will be provide an example for for other funds in the UK and further afield. A variety of governance models were explored in my paper "The pressure for global corporate governance standards for the real estate investment management industry", a presentation to the RICS and SPR "Cutting Edge" conference on 22nd October 2013. It can be found here.
Communication with investors
A key finding of the report three years ago was that managers needed to improve communication with investors. This was also commented upon in the AREF / IPF seminar in May last year, with Howard Meaney from UBS encouraging all fund managers to at least achieve the standards required by the AREF Code of Practice. Many managers have gone well beyond this and have given considerable thought to both the quantity and quality of information provided to investors. Communication is a two way process and seeking the views of investors is as important as providing information.