To show net returns on realized deals/case studies, use an average fund-level fee metric

NAREIM Legal, Compliance & Risk meeting: Key takeaways

July 29, 2022



When highlighting case studies or realized deals as part of your marketing materials, the SEC is taking a “wooden approach” to the issue of net returns. You must show net as well as gross even on case studies - and use the same methodology for both.


During NAREIM’s Legal, Compliance & Risk virtual meeting this week, members discussed the SEC’s new marketing rules, due to come into force on November 4, and how the rules were impacting marketing materials overall as well as extracted performance, such as when you highlight unrealized/realized deals and deal case studies.


The meeting was told that the SEC expected an apples-to-apples methodology for net and gross returns across the overall marketing materials, but that the same approach was also expected on extracted performance, when you pull out key deals for deeper analysis.


It was “mathematically impossible” to calculate net returns at the property level given different investor fee structures, but you had to get close to what the SEC wanted, members heard. Taking a “status quo” approach – such as having a net fund-level metric in the marketing document but not net returns for individual deals or groups of deals – was not advised.



One member described their approach to extracted performance:

  • Calculate an average fund-level fee, compromising fees such as asset management, promote etc, and then apply that average on an individual basis to case studies. It provides an “approximation” of the spread between gross and net, the meeting heard.


Most managers though are still sorting this issues out – but it would be something to expect to come up during SEC exams. “We are in an era where you really have to show your math, your calculations and your methodology.


Other highlights from the NAREIM Legal, Compliance & Risk meeting included:

  • Advertising: The definition of advertising has been expanded thanks to the SEC’s inclusion of indirect advertising – something that includes third parties speaking positively about your vehicles. For instance, testimonials or employee social media accounts. What others say about you now matters as it’s a form of indirect advertising on behalf of your firm.

  • Social media: You need policies to state what is allowed and what is not allowed to be posted on behalf of the firm. Consider monitoring of accounts or sampling accounts periodically

  • Testimonials/Recommendations: Your relationship to people/companies recommending you should be disclosed, including any compensation and the terms of that compensation.

  • What we wish we saw more of in SEC exams: Members were also advised to show more materials relating to the following issues during SEC exams:

  • Overall organization charts, materials that show how the organization works as a whole

  • Interrelationships between all firm vehicles

  • Training and development of employees, such as training programs, conferences attend

  • Document SEC requests, and negotiate if there’s a better way to deliver the information needed

  • Request an exit interview if it’s not offered


Click here to download the presentations from the meeting – on SEC marketing rules and SEC exam tactics – here.