INTERNATIONAL: IOSCO publishes findings from real estate funds` questionnaire

Wednesday June 25 2008

In the Final Quarter of 2007, a questionnaire consisting of 21 questions about real estate funds was circulated among the members of the IOSCO (International Organisation of Securities Commissions) Technical Committee Standing Committee on Investment Management (SC5).

The intention of the questionnaire was to compare the regulation of real estate funds in the different jurisdictions and, if possible, to identify common themes and problems to be able to decide whether this subject needs further attention of SC5 in the near future.

Amongst the questions considered were the permissibility and regulation of real estate funds followed by considering the differences between them and other Collective Investment Schemes (CIS).

The findings revealed that most SC5 Members regulate real estate funds with the exception of China and the US CFTC (Commodities Futures Trading Commission). In addition, the US SEC (Securities and Exchange Commission) generally does not regulate CIS issuers that invest directly in real property.

Upon comparing the answers, it is observed that some jurisdictions rely on transparency and broad principles, whereas others provide for precise rules and limits. Some jurisdictions are in the process of changing their regulation or have just finalised that process.

With the exception of Brazil, Hong Kong Portugal, Spain and the US SEC, most jurisdictions make no principal difference between real estate funds and other CIS so that they are basically treated the same, even if in most cases additional rules apply to real estate funds.

In respect of disclosure requirements, all jurisdictions require real estate funds to disclose their features in a prospectus and report about the past financial period at least once a year. A few jurisdictions rely on the general disclosure principles that apply to all CIS including those investing in real estate. Most jurisdictions however, address specific elements of real estate investments that should be disclosed in detail in the prospectus and/or annual report.

Questions as to whether real estate funds are permitted to be established as open-ended funds and the presence of special rules to guarantee a certain minimum of liquidity revealed that different regulation exists for the registration of real estate funds. In Brazil, Hong Kong and Italy, open ended funds are not allowed while Germany only accepts open ended funds. A number of jurisdictions allow both.

In terms of minimum liquidity requirements, different regulation also exists with regard to guaranteeing a certain minimum of liquidity, lock in periods and postponing of redemptions. The most common regulation to guarantee sufficient liquidity requires an obligated minimum percentage of liquid assets in the portfolio, fixed moments of redemptions and subscription and a minimum period of notice for investors.

Click on the above link for the full report.

Previous related Articles of interest:

* Call for EU-regime for retail Real Estate Funds

* European Commission announces Expert Group on open-ended real estate funds