"It’s ok to map out your future — but do it in pencil"
Jon Bon Jovi, speech to to the 2015 graduating class of Rutgers University
Welcome to our latest edition, the first since the Prime Minister announced his road map easing lockdown restrictions between now and 21st June. We are particularly excited by the idea of 21st June being the end date. John worked in St Petersburg in the 1990s and 21st June is the peak of “White Nights” when the sun never sets, traditionally celebrated with a city wide, all night party. This is our plan for 21st June. You will be welcome to join us.
Brexit
On Friday, the Council of the EU requested the European Parliament's consent to its decision on the conclusion of the EU-UK trade and cooperation agreement and a security of information agreement. You can read it here.
In our blog published on Boxing Day regarding financial services post Brexit (see here), we commented on the lack of certainty for the industry under the Trade Agreement with the European Union. The Agreement is incredibly flimsy on financial services which is mainly covered in a half page side agreement that says that a Memorandum of Understanding (MoU) would be agreed by March. We expressed considerable scepticism that the MoU would provide any great clarity, instead providing instead little more than an outline roadmap towards a future relationship. On Friday, Financial News published what it claims is the draft MoU. You can find it here. It is as vague as we expected.
UK funds review
Just a very brief update on the two key elements of this.
Review of the UK funds regime: a call for input
We covered this in detail in our previous newsletter, see here.
John is part of the AREF working party drafting a response and will also be drafting the Investment Property Forum (IPF) response.
There will be an AREF / IPF / INREV webinar on this on 23rd March, which John will be chairing.
You can find details here.
The Tax Treatment of Asset Holding Companies in Alternative Fund Structures: Government response and second stage consultation
John drafted the response for the Investment Property Forum, which was submitted last week. Please contact us if you need further information.
SFDR - Final report on draft RTS
The final report and draft Regulatory Technical Standards (RTS) on disclosures under the European Union Sustainable Finance Disclosure Regulation (SFDR) were published on 4th February. Although the RTS will not apply in the UK post Brexit, many UK fund managers have funds in the EU or market to EU investors so it will not be possible to simply ignore the provisions.
John is part of the AREF SFDR working group, which responded to the earlier consultation on the draft RTS which ran from 23rd April to 1st September 2020.
John coordinated an industry response arguing that real estate as an asset class should be excluded until a workable framework for reporting direct property can be developed, drafting the AREF and IPF responses to the consultation, and coordinating with INREV, GRESB and the BVCA.
The new RTS recognises that the original proposals were unworkable for real estate as an asset class. Disappointingly, rather than take time to develop a really strong framework, a slightly haphazard set of tests has been rushed out. Whilst an improvement on the earlier suggestions, it is far from ideal.
You can find the RTS here.
The disclosures for real estate are in two places in the RTS. The first is general indicators on page 62:
In calculating the second of these, the following formula should be used:
There are further more detailed criteria for real estate are set out on pages 72 to 74 covering:
18. GHG emissions
19. Energy consumption intensity
20. Waste production in operations
21. Raw materials consumption for new construction and major renovations
22. Land artificialisation
There is an AREF members webinar to discuss the indicators applicable to investments in real estate on 3rd March. You can find details here.
Pension Schemes Act 2021
We have been covering this since the reforms of UK pensions were announced by George Osborne in the 2014 Budget. The legislation finally received Royal Assent on 11th February 2021 and is now law.
You can find background in our summary from January 2020 here, which remains relevant as the final legislation was not much different from the December 2019 proposals.
In the long-term, the most interesting change is the introduction of "collective money purchase schemes” (i.e. Collective Defined Contribution Pension Schemes) in the UK. At this stage only schemes set up by single employers or groups of connected employers are allowed. The Act has the power to make regulations to change this. The development of industry-wide schemes that exist in other countries would facilitate investment in illiquid assets.
Mini-bonds
The scandal rumbles on. As we mentioned in our previous newsletter, Andrew Bailey, now the Governor of the Bank of England, was due to testify before the Treasury Select Committee on 8th February. He provided a robust defence of his position. However, on 10th February, Dame Elizabeth Gloster, the author of the Report of the Independent Investigation into the Financial Conduct Authority’s Regulation of London Capital & Finance plc. said she disagreed with testimony and rejected his claim that there had been a “misunderstanding” on the issue.
John was asked to speak on an EG podcast which looked at mini-bond arrangements that have been used to fund questionable Permitted Development Rights (PDR) schemes. John commented on the financing side with boutique agent Jonathan Vandermolen and the British Property Federation's Ian Fletcher covering the PDR aspects. You can find the recording here. John's description "a venn diagram of the crooked" seems to have struck a chord.
Forthcoming events
AREF SFDR discussion
As mentioned above, there is an AREF webinar on this on 3rd March. You can find details here.
AREF funds consultation webinar
As mentioned above, there is an AREF webinar on this which John is moderating on 23rd March. You can find details here.
ICAEW webinar
The Institute of Chartered Accountants webinar on on the future of retail on which John is speaking has been rearranged from 16th February to Wednesday 21st April. You can find details here.
If you are not a chartered accountant but would never-the-less like details, please let me know.
Historical trivia
We are deeply concerned by Culture Secretary Oliver Dowden's announcement that woke, leftie historians should stop "soiling our colonial past with notoriety". We have taken great pride in regularly "soiling our colonial past" and indeed a wide variety of other historical topics over the years in this newsletter. We seek out notoriety like a British officer hunting a tiger at the height of the Raj. We will therefore be monitoring closely this alarming development, but in the meantime, will not be deterred from soiling ourselves in public.
Any of you who are our friends on Facebook will have noticed that we have recently started alleviating the tedium of lockdown by reviving otherwise neglected ecclesiastical feast days, which we mark with very formal dinners despite it being only the two of us. This week was the Feast of the death of Pope Hilarius, no laughing matter. Rather than an extended commentary, we bring you therefore a photo of us enjoying ourselves:
Pope Hilarius (Bishop of Rome 461 to 468) was most noted for clamping down on heresy so we assume his name was something of a misnomer, particularly for the heretics concerned.
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