Creation of New Fund for Liquid Assets - Barings Eastern Europe Fund

Impacts RL360 Preference policyholders

Background

The Base Fund has a number of impacted assets (the “Impacted Assets”) which are Russian, Belarusian and Ukrainian holdings that have been directly and/or indirectly impacted by the Russian invasion of Ukraine by way of imposed sanctions/have become illiquid/untradeable or are difficult to value accurately at this time. As a consequence, the value of the Impacted Assets in the Base Fund were written down to zero by Barings in March 2022 in order to apply a fair valuation for the best interests of investors.

Transfer of Liquid Assets to a New Fund

The Directors have decided in consultation with the Investment Manager that it is in the best interest of unitholders of the Base Fund to transfer the non-Impacted Assets (the “Liquid Assets”) to a new fund (the “New Fund”) with effect from 21 July 2023 (the “Effective Date”) (together the “Transaction”). 

The Base Fund will remain a sub-fund of the Barings Global Umbrella Fund structure (the "Base Umbrella"), whilst the New Fund will be a sub-fund established under the Barings International Umbrella Fund (the “New Umbrella”), an umbrella fund constituted as a unit trust established pursuant to the Unit Trusts Act, 1990, and authorised by the Central Bank as a UCITS under the Regulations. 

The benefit of the Transaction to the Base Fund unitholders is that the New Fund will continue to be managed with the same investment objective and policy as the Base Fund, which enables Base Fund unitholders to benefit from the ongoing performance of the Liquid Assets whilst retaining (through the Base Fund) an interest in the Impacted Assets should their value return in the future. The Impacted Assets will remain in the Base Fund as a sub-fund of the Base Umbrella.

The New Fund established under the New Umbrella will be named as Barings Eastern Europe Fund A Inc USD and will retain the existing ISIN code IE0000805634 that is currently used on the Base Fund. From the Effective Date, the Base Fund will be re-named as Barings Eastern Europe (SP) A Inc USD and will have a new ISIN code IE000OKSBXA0 assigned to it, remaining in the Base Umbrella.

On the Effective Date, the Base Fund unitholders will be issued the equivalent number of new units (“New Units”) in the New Fund, calculated using an Exchange Ratio, which will be calculated as follows:

The net asset value per unit for the relevant class of the Base Fund (determined at 12pm (Irish time) on the Effective Date (the “Valuation Point”)), excluding the Impacted Assets, divided by the initial offer price of the relevant unit class / share class in the New Fund (determined at the Valuation Point).

It is intended that the initial offer price per unit of the New Fund will be set to match the net asset value (“NAV”) per unit of the Base Fund as at the Valuation Point, (excluding the value of the Impacted Assets, which is currently valued at zero) with the result that the Exchange Ratio is expected to be 1:1. 

The issue of New Units in the New Fund will not be subject to any charges. Base Fund unitholders will continue to hold the same number of existing units in the Base Fund. All associated costs of the Transaction will be borne by the Manager.

On implementation of the Transaction, the Base Fund shall cease operations on the first Business Day following the Effective Date and Time. Following this date, the Manager will fully wind up all the affairs of the Base Fund, once trading of the Impacted Assets allow. Subject to the proviso below, any surplus of assets remaining after the discharge of outstanding liabilities in relation to the Base Fund, which includes the Impacted Assets, (the “Surplus”) will be distributed in cash pro rata to the Base Fund unitholders on the register of the unitholders of the Base Fund on the Effective Date and Time. If, however, the Surplus is such that the cost of distribution of such Surplus would be excessive in proportion to the value of the Surplus, then the Base Fund shall arrange for the Surplus to be transferred to the New Fund within thirty (30) days of the calculation of the Surplus (but no further New Units shall be issued to former unitholders in the Base Fund as a result of the transfer of the Surplus).

Charges

From the date of suspension of the Base Fund to the Effective Date, Barings' management fees are only chargeable on the portion of Liquid Assets.

Upon the Transaction taking effect, management fees of the Base Fund will be waived. The Manager will bear all the ongoing operation costs and expenses of the Base Fund upon the Transaction taking effect, until it can dispose of the Impacted Assets and terminate the Base Fund.

Allocation of New Units for the Liquid Assets for Preference policyholders

We feature the A Inc USD share class of the Base Fund in Preference. The New Fund for Preference will be the same share class.

Shortly after the week commencing 24 July 2023 (the “Dealing Date”), the above share class of the New Fund will become visible on all affected Preference policies.

Policyholders will receive an equivalent allocation of units in the above share class of the New Fund on a 1:1 basis equal to the relevant unit holding in the above share class of the Base Fund as at the Effective Date, at a NAV price calculated at the Valuation Point. After the Effective Date, the above share class of the New Fund will be an actively trading fund for subscription, redemption, switching into and switching out of.

The unit allocation in the above share class of the Base Fund will remain suspended and zero priced and therefore will not be visible on policies.

Upon such time a realised value (if any) is received from the Base Fund in respect of the Impacted Assets, this will be allocated to the Base Fund accordingly. We will update you regarding the manner of any allocation applicable to you at the time of any such event occurring.

Redemption and/or switch instructions submitted for the Base Fund from Preference policyholders

Please note that unitholders will not be able to redeem or switch from the Base Fund. However, redemption of units, switching and investment in the New Fund will be available from the Dealing Date.

Summary

1. A New Fund will be launched to which the liquid assets of the Base Fund will be transferred
2. From the Effective Date the Base Fund will only exist to hold the suspended Impacted Assets
3. The Base Fund will continue to be suspended to all trading activity and will not be visible in affected policies
4. On the Effective Date, the New Fund will launch. It will be actively trading and visible in affected policies and will be available for switches, redemption/surrender and further investment.

These changes will happen automatically within affected policies and policyholders do not need to take any action. 

Policyholders should seek the advice of their usual independent financial adviser before making any investment decisions.

We have written to impacted policyholders and advisers, a sample of the policyholder letter can be found opposite. 

The Appendix in the sample policyholder letter provides a simplified comparison of the features of the Base Fund and the New Fund from the Effective Date. While there are some differences between the Base Fund and the New Fund, it is not expected that there will be any material difference in the rights of the Base Fund unitholders before and after the Transaction takes effect.