Registrar authorises portfolios to ‘side pocket’ ABIL debt

19 August 2014 FSB

The Registrar of Collective Investment Schemes (CIS) has decided to allow CIS managers to create new funds, known as side pockets, to host African Bank Investment Limited (ABIL)’s debt instruments. The move seeks to assist managers to segregate the less liquid ABIL assets within their portfolios from the remaining assets and in so doing limit new investors into the fund from exposure to the ABIL debt. The side pockets will only be open to existing investors in the related fund at the time of its creation.

Should a CIS fund elect to create side pocket for ABIL debt:

1) The ABIL assets will be transferred from the main fund to the secondary side pocket fund.
2) Unit holders at date of creation of the side pocket will be allocated their proportional units in this fund.
3) Each affected unit holder will therefore have units in 2 funds: the originating fund and secondary fund, the aggregate of which will be equal to their investment in the originating fund before the secondary fund was created.
4) Any new investment in the originating fund after the side pocketing will not be exposed to the ABIL debt.
5) As and when the ABIL debt matures and is settled by the curator of ABIL, unit holders in the secondary portfolio will be paid out their proportionate share, according to their unit holding.

In the event that a fund manager chooses to deal with its ABIL exposure in this manner, the manager will be required to communicate with its investors in this regard, and regularly provide a report to the investors on the status of the side pocket, in line with the principles of Treating Customers Fairly.

As at the close of business on 18 August, the Registrar has received applications for side pocket portfolios for 50 funds exposed to ABIL.

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