INREV members have encouraged and strongly supported the establishment of industry guidelines over the past few years and developed an integrated set of principles and recommendations including tools and examples for governance and information provision for investors and investment managers and investors of non-listed real estate vehicles. The objectives of the INREV Guidelines are: to ensure that investors in non-listed real estate vehicles obtain consistent, understandable, easily accessible and reliable information that can be compared across investments and between different periods; to establish requirements and best practices within the industry and to help investment managers implement them in practice. The INREV Guidelines are presented in an online format, allowing visitors to easily navigate and search through and view tailored guidelines for example for open end funds. The Guidelines are embedded in an Adoption and Compliance Framework which allows investment managers and investors to evaluate their implementation of the INREV Guidelines, module by module. Best practices Best practices have been developed by INREV to enable investors and investment managers to design vehicle products with an effective corporate governance framework aligned with industry best practices and at the same time relevant to specific needs.
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Skill, care diligence and integrity; Accountability; Acting in investors interests, including alignment of interests and conflict of interests; Confidentiality. Being primarily responsible for this, the manager has to have appropriate systems in place to monitor, confirm and disclose compliance to the investors and non-executive officers. The non-executive officers should oversee the manager in all these respects, and should be able to seek external advice on these matters.
The role of the non-executive officers the terms non-executive officers, independent directors and investor representatives are used interchangeably in the corporate governance guidelines and in this summary is to oversee the manager in this respect. The constitutional terms need to be unambiguous to enable all parties to accept and adhere to these. Vehicle decision-making: When investing in a vehicle, investors provide a real estate investment mandate to a manager who consequently has the fiduciary obligation to execute on such mandate in a professional way within the parameters of that mandate.
Investors should however retain control over the fundamental parameters underlying the investment mandate, such as changes to investment and financing strategy or remuneration of the manager. The threshold of investors required to make material changes should be defined. Approval thresholds need to be feasible, too low hurdles as well as unrealistically high hurdles should therefore be avoided blocking votes.
The code of ethics relates amongst others to appropriately skilled, trained and controlled staff of all parties involved in the vehicle. While the non-executive officers have to ensure that the manager has related internal controls in place the investors equally oversee the non-executive officers in this regard. Investor default: The vehicle documentation should contain a clause determining provisions in the case that investors default on their capital calls. Included penalties and suggested remedies should address automatic default, notification of the non-executive officers or the other investors, forced sale and voting rights.
Investment committee: An investment committee should be installed to assess material changes to the investment strategy and the business plan of individual assets. Use of third parties: The vehicle documentation should set out any use of third party service providers including assigned responsibilities and accountabilities.
A system of checks and balances between the manager, the custodian and the paying agent as well as any approval requirements from the investors with respect to appointment or replacement should be disclosed. Risk control processes: The vehicle documentation should clearly describe the related risk control processes and how the manager monitors, measures and reports these. The non-executive officers are responsible to the investors while they themselves are accountable to their own relevant bodies.
The constitutional documents should explain if there are restrictions on losses to the vehicle arising from indirect or consequential loss. Removal of manager for cause: Vehicles should have a "removal for cause" clause in place that gives investors, dependent on a defined threshold, the right to call at any time for a vote to remove the manager.
The vehicle documentation should clearly describe how cause can be established. Non-executive board: If the vehicle has a non-executive board in place the selection criteria of the independent directors should be clearly defined in the vehicle documentation and focus on the depth and breadth of relevant experience. Procedures should be in place to ensure that material decisions are recommended by the manager for consideration and approval rather than just consultation by the committee.
The non-executive officers may retain an external counsel at the expense of the vehicle and have access to appropriate insurance. Transparent and comprehensive reporting is essential for every vehicle to be assessable and easily understood by its involved parties. Consequently the manager is obliged to disclose reports in a timely, proper and comprehensive manner, so as to inform on matters such as strategy, progress of targets and the performance of the vehicle. Rights of investors to obtain information: To provide investors with a forum to ask questions and to be heard the manager shall hold frequent investor meetings.
Investors should always have the ability to convene such a meeting themselves to discuss any potential issue that needs to be heard. The same applies to the right to inspect the books and records of the vehicle and the manager or have a third party auditor conduct an audit. Investors may rely on all side letters between the vehicle and the other investors.
It is essential not to encourage risk-taking inconsistent with the risk profile of the vehicle. A written protocol how to handle conflicts of interest within the vehicle has to be implemented which outlines how investors will be treated on new issues, redemptions and transfers of equity in the vehicle and co-investment opportunities. The investors on the one hand should advise the vehicle and non-executive officers in a timely manner if they consider that the vehicle is not being run in their best interests and on the other hand should inform the vehicle about any conflicts of interest originating in their own bodies.
In this case investors should make available any necessary information in a timely and proper manner to enable the manager to take appropriate measures. Co-investment: The co-investment arrangements should run for the life of the vehicle and provide that key personnel and other individuals running the vehicle co-invest a meaningful amount in the vehicle.
If a replacement has not been identified within a defined time period the vehicle can be terminated for fault. Best practice is that the manager receives a management fee that is sufficient to manage the vehicle and a carry structure that rewards the manager for adding value above the expected return in the base case.
Conflicts of interest: A clearly defined protocol to manage conflicts of interest should be in place and overseen by the non-executive officers or investors. The protocol should define the extent to which the manager has to offer investment options exclusively to the vehicle. This information must be treated according to the agreements in the constitutional terms. In general the need to maintain confidentiality has to be balanced against the need to ensure transparency and if there is a conflict, the need for transparency should prevail.
However, information which, when disclosed, would create a competitive disadvantage to the vehicle, is expected to be treated as confidential and not to be disclosed widely. Confidentiality provisions should indenture all investors with the same restrictions and may not effectively prohibit investors exercising their rights under the constitutional documents.
Where they arise, conflicts of interest should be managed fairly between investors, vehicles and managers; the alignment of interests between investors and managers can reduce the risk of such conflicts.
INREV has developed an integrated set of principles and recommendations including tools and examples for governance and information provision for fund managers and investors of non-listed real estate vehicles. The objectives of the INREV Guidelines are: to establish requirements and best practices within the sector and to help managers implement them in practice; to ensure that investors in non-listed real estate vehicles obtain consistent, understandable, easily accessible and reliable information that can be compared across investments and between different periods. The INREV Guidelines are presented in an online format, allowing visitors to easily navigate and search through and create specific customised guidelines. The guidelines are primarily tailored towards non-listed real estate funds, but further guidance applicable to specific investment vehicles will be added over time.
INREV revamps guidelines
Skill, care diligence and integrity; Accountability; Acting in investors interests, including alignment of interests and conflict of interests; Confidentiality. Being primarily responsible for this, the manager has to have appropriate systems in place to monitor, confirm and disclose compliance to the investors and non-executive officers. The non-executive officers should oversee the manager in all these respects, and should be able to seek external advice on these matters. The role of the non-executive officers the terms non-executive officers, independent directors and investor representatives are used interchangeably in the corporate governance guidelines and in this summary is to oversee the manager in this respect.