Risk Disclosures

Risk Disclosures for REIA Capital Funds

No guarantee of returns or profits / risk of loss

There is no guarantee that the return or profit targets will be achieved, or that any positive returns or profits will be realized. Furthermore, there is a risk of (partial) loss of invested capital, up to a total loss.

Lack of tradability

Shares in the REIA Capital Funds are limited in tradability and highly illiquid. Transferability is not possible at any time and requires the approval of REIA Capital GP Limited. In addition, there is typically no established secondary market for shares in closed-end funds, and selling them is often possible only with significant discounts. Early redemption of shares is excluded.

Blindpool risk

There is a risk that the REIA Capital Funds may not find suitable investment opportunities (target funds, co-investments) to a sufficient extent. The same applies at the level of target funds with regard to investment opportunities in the form of corporate participations.

Dependency on portfolio companies

The repayment of invested capital and the return, in the case of participation in target funds from the private equity sector, depend on how successfully they can sell the acquired portfolio companies. It cannot be ruled out that, upon the sale of portfolio companies, the originally invested capital of the target funds may not be fully or not at all repaid, and no positive return may be generated. Since portfolio companies usually do not make regular distributions, there is generally no return of invested capital by the target funds before the sale of portfolio companies. Therefore, participating in such target funds entails higher risks than an investment in traditional tangible assets, such as a real estate portfolio. The profitability of the participation in the target funds depends significantly on the economic development of the portfolio companies held by the target funds. Portfolio companies may, under certain circumstances, have only a short operational history and may therefore not yet have a market-tested business model, a mature product range, or experienced management. Investments in such companies typically involve significantly greater risks than investments in large and established companies. However, even with established companies, there is a risk that the expected development will not occur. The same applies to co-investments.

Use of leverage

It is to be assumed that both the target funds and the portfolio companies held by the target funds will employ a significant amount of leverage. The use of leverage may negatively impact the value of the target funds as well as the respective portfolio companies. This is particularly the case if the returns generated by the target fund’s investments fall below the cost of debt capital. Employing leverage can amplify the effect of macroeconomic developments, such as rising interest rates or changes in exchange rates, on the value of the target funds (so-called leverage effects). Additionally, there is risk that interest rates may change or that follow-up financing may only be available on less favourable terms or may not be obtained at all. Furthermore, loan agreements often specify that if previously agreed on financial covenants are breached, the borrower must provide additional collateral, or the lender may even terminate the loan early. The lender will typically hold senior rights to liquidate the assets of the target funds or portfolio companies.

Further ownership and operational risks

Typical additional ownership and operational risks of the portfolio companies of the target funds include technical and organizational problems, insolvencies, contract breaches by partners, government regulations, political developments, and changes in the global economic climate. The general economic climate has significantly deteriorated in recent times due to pandemics and armed conflicts.

Risks related to the management of the target funds

There is a risk that the employees responsible for investment decisions and management of the target funds may not be active for the entire duration of the target fund, and if necessary, an equivalent replacement may need to be found. Incorrect decisions by these individuals can lead to losses. The same applies to the employees of the AIFM and the investment advisor of the REIA Capital Funds.

ESG

Due to the consideration of ESG principles, investments in fundamentally economically viable opportunities might be avoided. On the other hand, despite a careful analysis of ESG concepts at the level of portfolio companies, unexpected developments may occur that are deemed problematic from an ESG perspective, thereby affecting the company's value.

Secondaries

If the REIA Capital Funds participate not only through initial subscriptions but also through the acquisition of such units from an initial subscriber (or another seller) on the secondary market (so-called Secondaries), the determination of the purchase price to be paid to the seller is often based on the Net Asset Value (NAV) of the assets held by the respective target fund, possibly plus a premium. The basis for such valuation is the information provided by the target fund. In connection with the valuation of such a target fund unit to be acquired on the secondary market, there is a risk that the valuation, for example, due to methodological flaws in the valuation method or incorrect information from the management of the target fund, does not reflect the actual value of the unit in the target fund and thus leads to an inflated purchase price. In principle, the REIA Capital Funds assume the legal position of the seller in the respective target fund. Therefore, it cannot be ruled out that the REIA Capital Funds, as a result of the acquisition, assume any unforeseen liabilities of the seller to the target fund or a creditor of the target fund.

Reduced influence

The REIA Capital Funds will hold only a minority share both at the target fund level as well as the co-investment level. This could limit the ability to influence important decisions even though the REIA Capital Funds, and thus its investors, must bear the consequences of these decisions.

Uncertainty of future results

The concept of the REIA Capital Funds is based on certain assessments and assumptions regarding the placement volume and the future economic development of investments and markets. However, there is no guarantee that these expectations and assumptions are accurate or that they will hold true. Future developments cannot be predicted with certainty. Moreover, the reliability of assessments and assumptions generally decreases over time. As a result, the long-term nature of the investment in the REIA Capital Funds inherently carries the risk that these assessments and assumptions will not hold true. Positive outcomes from comparable past investments are no guarantee for future returns. The same applies to investments in the target funds.

Regulatory risks

Due to changes in laws and regulatory frameworks, the investment opportunities of the REIA Capital Funds and also the target funds may be restricted, their return may deteriorate, or the investment may become impermissible.

Tax risks

Investments in the REIA Capital Funds are subject to tax risks. Investors are advised to seek council by consulting their tax advisor in this regard.