In late May, the Capital Market Authority (CMA) issued a routine resolution approving the public offering of a real estate fund. However, in doing so, the CMA also emphasized the importance of clearly drafted terms and conditions (T&Cs), and placed the burden on fund managers to get this right.

The key points highlighted by the CMA were as follows:

  • Investors should read carefully the T&Cs before making any investment decision. Not reading the T&Cs carefully or fully reviewing its contents was specifically noted as "high risk".
  • T&Cs should include detailed information on the fund, investment strategy and risk factors.
  • If the T&Cs prove difficult to understand, investors must refer to the fund manager for more information.
  • While much of this reiterates the existing position, the emphasis on the responsibility of the fund manager is pertinent, as is the forcefulness with which the CMA highlighted the risks of not reading the T&Cs correctly. In a growing domestic investment market, this is timely encouragement to investors to raise queries, which, in turn, exposes fund managers to the risks inherent in providing additional information to prospective investors.

Fund managers will need to exercise caution when responding to further enquiries. The marketing document for a fund will be its prospectus and the attached T&Cs. However, further enquiries as suggested by the CMA resolution could create a secondary level of marketing information upon which an investor relies. This creates risks in that prospective investors do not all receive the same information, and that some investors receive information that has not been through the same verification or approval process as will have been carried out on the main T&Cs. If a fund investment were to subsequently underperform, this may create heightened risk for fund managers who have provided additional "clarification" outside of the principal fund documents.

Fund managers can protect themselves in the following ways:

  • Include on all documentation an appropriate disclaimer that investment decisions are deemed to be based on the prospectus and T&Cs alone
  • Use plain and simple language in T&Cs
  • Avoid recycling old documents – simply reusing what might have passed on a previous investment without appropriate review could mean that imperfections in the drafting are compounded or repeated

Additional time taken at the inception of the fund to review the clarity of fund T&Cs and drafting of appropriate disclaimers is time well spent if it protects a fund manager.

Originally Published September 2021

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