Notification of changes affecting the underlying fund of R185 Barings Eastern Europe

20 Jun 2023

The underlying fund of the Friends Provident International Limited (“FPIL”) investment-linked policy sub-fund (the “Affected ILP sub-fund”) named above is Barings Eastern Europe Fund A USD Acc – ISIN code IE00B6TJN447 (the “Underlying Base Fund”), a sub-fund of Barings Global Umbrella Fund (the “Underlying Base Umbrella”).

We have received notification regarding the Underlying Base Fund from the board of directors (the “Directors”) of Baring International Fund Managers (Ireland) Limited (the “Manager”), who, in consultation with Baring Asset Management Limited (the “Investment Manager”) has advised of upcoming changes, in light of ongoing exceptional and adverse market conditions relating to the current situation in Russia and Ukraine, and the corresponding suspension of the Underlying Base Fund of the Affected ILP sub-fund since March 2022.

Background

The Underlying Base Fund has a number of impacted assets (the “Impacted Assets”) which are Russian, Belarusian and Ukrainian assets of the Underlying Base Fund that have been directly and/or indirectly impacted by the Russian invasion into Ukraine by way of imposed sanctions/have become illiquid/untradeable or which are difficult to value accurately at this time.

The value of the Impacted Assets in the Underlying Base Fund were written down to zero in March 2022 in order to apply a fair valuation for the best interests of investors. 

Transfer of Liquid Assets to a New Underlying Fund (“The Transaction”)

The Directors have decided in consultation with the Investment Manager that it is in the best interest of unitholders of the Underlying Base Fund to transfer the non-Impacted Assets (the “Liquid Assets”) to a new fund (the “New Underlying Fund”) with effect from 21 July 2023 (the “Effective Date”) (together the “Transaction”). The New Underlying Fund will be a sub-fund of Barings International Umbrella Fund (the “New Underlying 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 for unitholders is that the New Underlying Fund will continue to be managed with the same investment objective and policy as the Underlying Base Fund, which enables Underlying Base Fund unitholders to benefit from the ongoing performance of the Liquid Assets whilst retaining (through the Underlying Base Fund) an interest in the Impacted Assets should their value return in the future. The Impacted Assets will remain in the Underlying Base Fund as a sub-fund of the Underlying Base Umbrella.

The New Underlying Fund will retain the name Barings Eastern Europe Fund A USD Acc and the existing fund ISIN code IE00B6TJN447 under the New Underlying Umbrella. From the Effective Date, the Underlying Base Fund will be re-named as Barings Eastern Europe (SP) A USD Acc, with a new ISIN code IE000LKBCGY5, remaining in the Underlying Base Umbrella.

Please read the Appendix in the sample correspondence opposite for a summary comparison of the features of the Underlying Base Fund and the New Underlying Fund from the Effective Date. While there are some differences between the Underlying Base Fund and the New Underlying Fund, it is not expected that there will be any material difference in the rights of the Underlying Base Fund unitholders before and after the Transaction takes effect.

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

The net asset value per unit for the relevant class of the Underlying 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 Underlying Fund (determined at the Valuation Point).

It is intended that the initial offer price per unit of the New Underlying Fund will be set to match the net asset value (“NAV”) per unit of the Underlying 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 Underlying Fund will not be subject to any charges. Underlying Base Fund unitholders will continue to hold the same number of existing units in the Underlying Base Fund.

All associated costs of the Transaction will be borne by the Manager.

On implementation of the Transaction, the Underlying 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 Underlying Base Fund, once trading of the Impacted Assets allows. Subject to the proviso below, any surplus of assets remaining after the discharge of outstanding liabilities in relation to the Underlying Base Fund, which includes the Impacted Assets, (the “Surplus”) will be distributed in cash pro rata to the Underlying Base Fund unitholders on the register of the unitholders of the Underlying Base Fund on the Effective Date and Time. 

At such 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 Underlying Base Fund shall arrange for the Surplus to be transferred to the New Underlying Fund within thirty (30) days of the calculation of the Surplus (but no further New Units shall be issued to former unitholders in the Underlying Base Fund as a result of the transfer of the Surplus).

Creation of new ILP sub-fund for Liquid Assets

Accordingly, a new FPIL investment-linked policy sub-fund R247 Barings Eastern Europe (USD) (the “New ILP sub-fund”) will be created from the Effective Date, linked to the New Underlying Fund. 

Investors in the Affected ILP sub-fund will receive an equivalent allocation of units in the New ILP sub-fund on a 1:1 basis equal to their unit holding in the Affected ILP sub-fund as at the Effective Date, at a NAV price calculated at the Valuation Point, in the same manner as for the New Underlying Fund. The New ILP sub-fund will be active for subscriptions, switching into, switching out of, and surrender from 24 July 2023 (the “Dealing Date”).

Following the Effective Date, the Affected ILP sub-fund will be renamed R185 Barings Eastern Europe Side-Pocket (USD) and will remain suspended and zero priced, in line with the Underlying Base Fund, to which it will remain linked, with the same number of existing units as at the time of the Transaction.

Upon such time a realised value, if any, is received from the Underlying Base Fund in respect of the Impacted Assets, this will be allocated to the Affected ILP sub-fund accordingly. We will update policyholders regarding the manner of any allocation at the time of any such event. 

Charges

From the date of suspension of the Underlying Base Fund in March 2022 to the Effective Date, management fees are only chargeable on the portion of Liquid Assets. 

Contractual FPIL policy charges, calculated as stated in the policy Terms and Conditions, are deducted across ILP sub-fund held on a policy. Where an ILP sub-fund is suspended and zero priced, the charges in relation to the suspended ILP sub-fund holding are deferred until such time as a NAV price can be applied.

The accrued deferred charges in relation of the Affected ILP sub-fund holding will therefore be deducted from the New ILP following the Dealing Date. These will be deducted as a single transaction, calculated using the NAV price of the Valuation Point once this is known

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

FPIL policy charges applicable to the Impacted Assets remaining in the ILP sub-fund will continue to be deferred, until such time as a NAV price, if any, can be applied to the ILP sub-fund. We will update policyholders regarding the manner of any deduction which may be applicable at the time of any such event.

Action required by policyholders paying regular premiums into the Affected ILP sub-fund prior to suspension

Our letter of 2 March 2022 advised that any future premium allocation (if applicable) which would have been applied to the Affected ILP sub-fund, would be automatically redirected into R175 JPM USD Money Market VNAV (the “Default ILP sub-fund”). Where a policy held the maximum permissible 10 investment linked funds in March 2022, the allocation originally to the Affected ILP sub-fund was instead diverted to the investment-linked fund held in the policy with the highest value. Policyholders could instead provide alternative premium redirection instructions if preferred.

Following the Dealing Date, please note that the direction of future regular premiums will not automatically divert into the New ILP sub-fund. You do not need to take any action if you wish to continue paying premiums according to your current premium direction instructions.

Should you wish to redirect future regular premiums to the New ILP sub-fund, or to any other ILP sub-fund(s) available under your policy, this can be done free of charge, by completing a Switch/Redirection instruction form and returning it to us, or through our online services portal.

Redemption and/or Switch Instructions submitted for the Affected ILP sub-fund

Any redemption and/or switching instructions submitted for the Affected ILP sub-fund received prior to the close of business on 17 July 2023 (the “Cut-off Time”) will be processed from the New ILP sub-fund from the Dealing Date. For the avoidance of doubt, policyholders in the Affected ILP sub-fund will continue to hold the same number of existing units in the Affected ILP sub-fund as they hold immediately prior to the Effective Date upon their redemption and switching requests being processed in the New ILP. However, please note that Affected ILP sub-fund policyholders will not be able to redeem or switch from the Affected ILP sub-fund after the Cut-off Time. 

Redemption of units, switching and investment in the New ILP sub-fund will be available from the Dealing Date.

These changes will happen automatically within affected policies and policyholders do not need to take any action if they agree with the stated changes.  We recommend that policyholders seek the advice of their usual financial adviser before making any investment decisions.  

Should you have any questions regarding these changes, please contact the Investment Marketing team.