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REIT & BDC Valuation Update (FINRA 15-02)

by AOG Wealth Management

In an attempt to facilitate greater investment transparency, the Securities and Exchange Commission (SEC) approved changes for how Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs) determine their share value and communicate these values on client statements.  Beginning April 11, 2016 FINRA (Financial Industry Regulatory Authority) Rule 15-02 will go into effect and will be reflected on client statements going forward.

Prior to April 11, 2016, client statements have reflected the gross price paid per share and did not account for initial offering expenses.  The new rule requires the share price reflect a deduction of all estimated offering expenses associated with raising capital to show a net asset value (Net Investment Method).  The Net Investment Method value will be the official statement value until the investment company engages an independent third party to determine a new estimated per share value based on the actual value of the assets in the portfolio (Appraised Value Method).  The Appraised Value Method will be implemented, and reflected on client statements, no later than 150 days after the second anniversary of the investment companies closing of escrow.

REIT and BDC investments are an investment structure that has existed for many years and has enabled investors to pool their capital with other investors so that professional managers may invest on their behalf. The new reporting requirement does not affect company strategy or portfolio holdings.  It only impacts how investment values are reported on statements (Net Investment Method) until an estimated market value or net asset valuation (Appraised Value Method) is established.

We believe this change is another step in continuing to improve the quality of direct investments in real estate, energy, private equity, equipment leasing and business development companies enabling us to provide the best investment options to our clients.  We look forward to working with the investment sponsor companies in implementing FINRA Rule 15-02 for our clients.


Category: Wealth Management