• FUNDS 13.4 FUNDS 13.4 Investment and borrowing requirements for Public Funds

    • Application

      • FUNDS 13.4.1

        This Chapter applies to the Fund Manager of a Domestic Fund which is a Public Fund, an Eligible Custodian and, where appropriate, a Trustee, and, to Persons appointed to perform the oversight function for such a Fund, to the extent specified in Rule 13.3.5.

    • Spread of risk and protection of Fund Property

      • FUNDS 13.4.2

        A Fund Manager must take reasonable steps to ensure that the Fund Property of a Public Fund provides a spread of risk that is consistent with the investment objectives and policy of the Fund as stated in its Constitution and/or most recently published Prospectus, and in particular, any investment objectives as regards return to the Unitholders whether through capital appreciation or income or both.

      • FUNDS 13.4.3

        (1) A Fund Manager must avoid the Fund Property being used or invested contrary to any provision in this Chapter.
        (2) On becoming aware of any breach of a Rule in this Chapter, a Fund Manager must take action, at its own expense, to rectify that breach.
        (3) A Fund Manager must take the action in (2) immediately, except in circumstances where it decides doing so would not be in the best interests of Unitholders, in which case the action must be taken as soon as such circumstances cease to apply.
        (4) A Fund Manager must not postpone taking action in accordance with (2) unless the Persons providing oversight functions have given their consent.

    • Investment in other Funds

      • FUNDS 13.4.4

        A Fund may invest in Units of another Fund, except where otherwise provided for in these Rules. Before investing in another Fund, the Fund Manager must take reasonable care to determine that it:

        (a) is the subject of an independent annual audit conducted in accordance with IFRS or US GAAP;
        (b) has mechanisms in place to enable Unitholders to redeem their Units within a reasonable time if it is an open-ended Fund;
        (c) is prohibited from having more than 20% of its gross asset value in the Units of other Funds; and
        (d) has a proper and disclosed basis for asset valuation and the pricing of Units in that Fund.
        Amended on (3 February, 2020).

    • Transactions in derivatives

      • FUNDS 13.4.5

        (1) The total exposure of a Public Fund to Derivatives may not exceed the net asset value of the Fund Property.
        (2) The Fund Manager's systems and controls must include adequate risk management processes which enable it to monitor and measure as frequently as appropriate the risk of a Fund's Derivative positions and their contribution to the overall risk profile of the Fund.

    • Stock lending and borrowing

      • FUNDS 13.4.6

        (1) Subject to the Fund's Constitution and its most recent Prospectus, the Fund Manager, or the Eligible Custodian or Trustee at the request of the Fund Manager, may enter into:
        (a) stock lending arrangements in respect of any Securities forming the Fund Property; and
        (b) stock borrowing arrangements.
        (2) The Fund Manager must ensure that the value of any collateral for the stock lending arrangement is at all times at least equal to the value of the Securities transferred.

    • Borrowing

      • FUNDS 13.4.7

        (1) Subject to the Fund's Constitution and its most recent Prospectus, the Fund Manager, or the Eligible Custodian or Trustee on the instructions of the Fund Manager, may borrow money for the use of the Fund on terms that the borrowing is to be repayable out of the Fund Property.
        (2) The Fund Manager must ensure, except in the case of a Property Fund, that the Fund's borrowing does not on any day exceed 20% of the gross asset value of the Fund Property and must take reasonable care to ensure that arrangements are in place that will enable borrowings to be repaid to ensure such compliance. The Fund Manager of a Public Property Fund may borrow either directly or through its Special Purpose Vehicle for financing investment, or operating purposes but aggregate borrowings must not at any time exceed 65% of the total gross asset value of the Fund.
        (3) In the event that the borrowing limit under (2) is exceeded, the Fund Manager must inform the Trustee (if appointed), the Unitholders and the Regulator of the magnitude of the breach, the cause of the breach, and the proposed method of rectification. The Fund Manager must use its best endeavours to reduce, as soon as reasonably possible, the excess borrowings, whether by liquidating assets to repay borrowings or otherwise, to the extent practicable without having a material adverse effect on the Fund or investors as a whole.
        (4) All borrowings by the Fund must be conducted at arm's length, unless otherwise approved by the Oversight Committee or by Unitholders (by way of Special Resolution).
        (5) Borrowings by any Special Purpose Vehicles held by the Fund must be aggregated for the purpose of calculating borrowings of the Fund for the purposes of this Rule.
        (6) In this Rule, "borrowing" also includes any arrangement including a combination of Derivatives to achieve a temporary injection of money into the Fund Property in the expectation that the sum will be repaid.

    • Investment in Real Property

      • FUNDS 13.4.8

        A Fund Manager must ensure that a suitable Valuer is appointed for a Fund at all times in order to ensure the proper valuation of any Real Property that forms part of Fund Property

        Amended on (3 February, 2020).

      • FUNDS 13.4.9 FUNDS 13.4.9

        (1) The Fund Manager must ensure that the Valuer appointed under Rule 13.4.8 procures the proper valuation of all the property held within the Fund Property, on the basis of a full valuation with physical inspection including, where the property is or includes a building, an internal inspection at least once a year.
        (2) For the purposes of (1), any inspection in relation to adjacent properties of a similar nature and value may be limited to that of only one such representative property.
        (3) The Fund Manager must, subject to (4), ensure that the Valuer values the property, on the basis of a review of the last full valuation, at least every 6 months.
        (4) If any event occurs which may on reasonable grounds have a material effect on the valuation of the relevant property the Fund Manager must consult with the Valuer with a view to arranging a fresh valuation before any Units in the Fund are issued or redeemed after the date of the event.
        (5) The Fund Manager must require that any valuation by the Valuer is on the basis of a 'market value' as defined in the Constitution and Prospectus.

        • Guidance

          1. A Fund Manager should consult with the oversight provider before appointing a Valuer.
          2. The Regulator would expect the Fund Manager to define 'market value' based on an authoritative text such as the current edition of the Royal Institute of Chartered Surveyors' Appraisal and Valuation Standards ("Red Book") or similar practitioners text used by surveyors for the valuation to be a proper valuation under Rule 13.4.9(5).
          Amended on (3 February, 2020).