REIT vs InvIT vs Private Real-Asset Fund

A listed real estate investment trust and a listed infrastructure investment trust are traded vehicles. Nilgiri Real Assets Fund I, invented, is not traded at all. The private structure is a closed-end trust with a contracted term, capital called when an asset is bought, and no exchange price at any point. Every condition attaching to the two listed vehicles is set by the Securities and Exchange Board of India at sebi.gov.in.

Start with the feature that makes this comparison unusual. Knowing it changes what to expect before a word of the comparison is read. Two of the three vehicles in the title are traded on a stock exchange, and almost everything a reader wants to know about them is written and maintained elsewhere. The third one is an invented fund, and every rupee in it was made up here on purpose so that it can be described to the last digit without misleading anybody. So the honest shape of this comparison is one column filled completely and two columns that stop at a regulator's name, and that shape is the substance of it rather than a gap in it. Five questions can be put to any wrapper around any real asset, answered in full for the private case and answered structurally, and no further, for the other two.

Why is this comparison built on structure rather than on what each one returns?

Because there is nothing honest to compare on returns. A return comparison needs figures for three vehicles over the same period, measured the same way, and what is available here is one invented fund and no market data of any kind. Every number here belongs to Nilgiri Real Assets Fund I, invented, and a made-up number cannot be set against a real one. The wrapper is the only thing that can be compared truthfully, so the comparison runs on the wrapper.

Here is the everyday version. One shop unit sits on a busy road. Three different people have a stake in that same unit. The first bought it outright and holds the papers in a drawer. The second put money into a pooled arrangement with eleven other people, signed an agreement, and now receives a letter every few months telling them what the pool thinks the unit is worth. The third holds a small tradeable slip that changes hands all day in a market down the road, and can watch its price move on a screen while eating lunch. The shop unit is identical in all three cases: same tenant, same leaking tap, same road outside, and yet the three people are holding three completely different objects. What differs is not the asset. The wrapper around it differs, and the wrapper decides how a holder got in, how a holder can get out, and what number is shown in the meantime.

Five questions follow from the wrapper, and every one of them is structural. Each can be answered without stating a single condition that a regulator may change tomorrow.

How does capital go into each of the three?

In the private case, capital goes in twice, and the two events are years apart. First the investor makes a commitmentA promise to provide capital when the fund calls for it.. A commitment is a promise in writing to provide a stated amount of money when the fund asks for it. No money moves on that day. Then, over the following years, the fund issues capital calls, and each one is a demand for a slice of what was promised, on the notice period the fund's own documents set. Farida Contractor, the chief operating officer of Nilgiri Alternatives Advisors Private Limited, invented, signs those notices. The fund calls capital when it has an asset to buy, so the date money leaves the investor's bank account is chosen by the fund and not by the investor.

Nilgiri Real Assets Fund I, invented, took commitments of Rs 4,00,00,00,000 and has called every rupee of it. Of that, Rs 3,75,00,00,000 went into five assets and Rs 25,00,00,000 went on the fund's own fee and expenses. The two amounts are 93.75 per cent and 6.25 per cent of the Rs 4,00,00,00,000 of commitments, both unrounded, and they sum to exactly 100.0. Notice the denominator, and expect it back: the shares are of the Rs 4,00,00,00,000 of commitments, not of what went into assets.

The traded side of the comparison is one act rather than two. Capital goes into a listed vehicleA pooled vehicle whose units change hands on a stock exchange. by buying units, either from the vehicle when it issues them or from another holder in the market. The whole amount is paid at the moment of purchase, so there is no promise to fund later. The buyer picked the day, so there is no notice from anybody.

How does capital come out of each of the three?

In Nilgiri Real Assets Fund I, invented, capital comes back when an asset is sold and at no other time. A sale is the entire mechanism. The money that went in is inside a building, a warehousing park, a solar generation asset, a road under construction and a retail centre, so the fund holds five real assets and no cash drawer to redeem a holder from. A closed-end private fund cannot hand a holder cash on demand for the simple reason that the cash is not there, it is bricks. The fund distributes what it receives, when it receives it, and the holder learns the amount from a notice rather than choosing it.

Readers hear about one partial route and assume it is an exit, so it is worth naming honestly. A secondary transferA sale of an existing interest from one holder to another rather than back to the vehicle. is a sale of an existing interest from one holder to another, rather than back to the fund. Whether such a transfer is possible at all is a matter for the fund's own documents, and even where it is permitted somebody still has to want to buy it and the two of them still have to agree a number between themselves. A negotiation is not a market, and a route that exists on paper does not mean there is a person at the other end of it.

On the traded side the answer is the mirror image and takes one sentence. Units are sold to another holder on the exchange, so the vehicle itself is not involved in the transaction at all and never has to find the money.

Who fixes the price a holder sees?

Price separates the three vehicles more cleanly than any other question, and precision about the word itself repays the effort. A price is the record of a transaction that has happened. Somebody wanted to sell, somebody wanted to buy, they agreed a number, and the number that appears on a screen is the residue of that agreement. A price is not an opinion about worth. A price is a fact about an event.

An unlisted vehicleA pooled vehicle with no exchange quotation, whose interests do not trade. has no such events, so it has no price. A holder of Nilgiri Real Assets Fund I is shown a carrying valueThe value a fund records for an asset it has not sold. instead. A carrying value is the value the fund records for an asset it has not sold. A carrying value is somebody's estimate arriving on a timetable, and a quoted price is a transaction that already happened, and treating them as the same kind of number is the most common mistake a reader makes about private vehicles. Nobody has tested the carrying value by paying it. Saying so accuses nobody. Saying so describes the object.

Who values the assets, and on what timetable?

In the private case there are named people doing named jobs, and it is worth walking through them because the arrangement is invisible from outside. Palani Valuation Advisors LLP, invented, is the independent valuation agentA firm outside the manager that values the assets on a fixed timetable. for this manager's vehicles, and Rohit Vaz, invented, signs for it. Between those valuations the manager, Nilgiri Alternatives Advisors Private Limited, invented, produces its own marks. Kolar Fund Services Private Limited, invented, is the administrator and strikes the number that reaches the holder, and Ashwin Baliga, invented, is the controller there who does it. Four parties touch the number a private holder is shown, all four are appointed by or answerable to the arrangement itself, and not one of them is a buyer.

A second difference follows from all four appointments, and it is worth naming plainly and carefully. A private mark is made from information that arrives on a timetable, and a traded price is made from information that arrives continuously. The consequence is that a private carrying value can sit still through a period in which something has changed, and then move when the timetable comes round. The difference describes how the two objects are produced, and it is not a criticism of either. Nothing in it says the timetable makes private marks wrong, and nothing in it says the timetable makes them steadier in a way that helps anybody. Both of those would be claims with no basis at all behind them.

For the two listed vehicles, who values what and how often is exactly the kind of thing somebody maintains rather than something structural, so the answer here is a pointer and not a number. The Securities and Exchange Board of India sets it at sebi.gov.in, the setting changes, and the current text there is the only reliable place to read it.

What can a holder actually do on an ordinary Tuesday?

Ask question five about a normal day. The difference lives there. Not at wind-up, not during a crisis, not on the day an asset is sold. A Tuesday in the fourth year, with nothing happening.

A holder in Nilgiri Real Assets Fund I, invented, can do nothing. There is no counter, no queue, no screen and no button. A holder can read the last statement again, telephone the manager, and wait. In a traded vehicle another holder sits on the other side of the trade rather than the vehicle itself, so a holder can transact whenever the exchange is open. Neither of those sentences is a compliment and neither is a complaint, and a reader who converts either one into an advantage has added something that was never said. Being able to act is not the same as acting well, and being unable to act is not the same as being protected from anything. The two are simply different structures with different consequences on an ordinary Tuesday.

What does the private column look like when it is filled to the rupee?

Fill it properly now. A column that can be filled should be. Nilgiri Real Assets Fund I, invented, is a closed-end property and infrastructure fund settled as a trust. Nilgiri Trusteeship Services Private Limited, invented, is the trustee and holds the assets. Nilgiri Alternatives Advisors Private Limited, invented, is the investment manager and makes the decisions. Nilgiri Financial Holdings Private Limited, invented, is the sponsor and stands behind the manager. The vehicle carries the same four-tier order of payment and the same commercial terms as this manager's flagship fund, and that order of payment, the preferred return, the catch-up and the carried interest are covered separately.

Its money went where the table below says it went. Rs 4,00,00,00,000 was committed and all of it has been called, with Rs 3,75,00,00,000 going into five real assets and Rs 25,00,00,000 going on the fund's own fee and expenses.

Two things about that table before anybody reads more into it than it holds. The shares in the right-hand column are shares of the Rs 3,75,00,00,000 deployed and not of the Rs 4,00,00,00,000 committed, and a share quoted without its denominator has said almost nothing. The table describes where money went, not what any of it produced. Earnings cannot be read off a purchase cost, and asset earnings come as a separate subject later in this sequence. A reader who wants to know what the fund is worth today is asking about a carrying value, an estimate nobody has paid, and not about the Rs 3,75,00,00,000 of cost in the table above.

How much can be stated about the two listed vehicles?

Exactly this far, and it is deliberately short. A listed real estate investment trust is a vehicle whose units change hands on a stock exchange, so a holder sees a traded price and transacts against another holder rather than against the vehicle. A listed infrastructure investment trust is a vehicle whose units change hands on a stock exchange in the same way, with the same consequence for how a holder gets in, gets out and sees a number.

Everything else a reader wants to know about them, on listing, on distribution, on leverage, on what they may hold and on who may invest, is set by the Securities and Exchange Board of India at sebi.gov.in, and it is changed there. How each of those two vehicles works internally is covered separately.

One question decides which facts about a vehicle can be written down at all, and it is worth carrying away far beyond this subject. Of any fact about to be written down: is this structural, or is this a condition somebody sets and maintains? A structural fact follows from the vehicle's own nature. Units traded on an exchange produce a traded price, and that is not a rule anybody wrote, it is what trading means. A maintained condition is true because a named body decided it and can decide otherwise on a Thursday. The first kind can be written down. The second kind is pointed at.

Which mistake turns a short comparison into a dangerous one?

Which subjects sit outside this comparison, and where do those answers live?

Four subjects sit outside it. How a listed real estate investment trust works internally, and how a listed infrastructure investment trust works internally, are covered separately. Conditions attaching to any of the three vehicles are set and changed by the Securities and Exchange Board of India at sebi.gov.in. A comparison of what the three produce would need real figures for three vehicles over one period, and only one invented fund is worked here. And how a stock exchange quotation works is a separate subject in its own right.

A fifth subject sits outside it too. The private fund's order of payment, its termThe fixed period a closed-end fund runs for before it must wind up, set in the fund's own documents. and its fee are covered separately and are used here as facts about the wrapper rather than taught again. The remainder after all five subtractions is small, and small is the honest size of what a comparison built from one invented case can give a reader.

With one hour and a real-asset vehicle, what should be asked?

An analyst sitting inside a private fund manager, a person on an operations desk reconciling a schedule, or somebody in a treasury reading a proposal, all meet real-asset wrappers they have never seen before, and none of them can memorise every structure. The five questions are wrapper-agnostic and they surface what actually differs, so the list of five, in order, is what anybody can carry.

Here is how it works in practice. A document arrives for a vehicle nobody has met before. Question one, how does capital go in, answers immediately whether the vehicle is a promise called later or a purchase settled now. The answer decides everything about how cash is planned. Question two, how does it come out, answers whether an exit is an event somebody else causes or an action the holder can take. Questions three and four together answer whether the number in the document is a price or an estimate, and who produced it. A structure that cannot be acted inside for four years is a different thing to live with from one that can be acted inside this afternoon, whatever either is worth, so question five is the one most readers skip and the one that matters most on any ordinary day.

The sixth move is a habit rather than a question. When any of the five answers turns out to be a condition somebody sets and maintains, it is not written down from memory and it is not accepted from a summary. The condition is read where it is maintained. For anything in this subject in India, that is the Securities and Exchange Board of India at sebi.gov.in.