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Brandeaux: FCA’s Ucis ban contributed to fund range suspension


Brandeaux has told investors that the suspension of its entire fund range was partially caused by regulatory moves to discourage advisers from marketing non-regulated funds.

Yesterday, the group contacted investors to inform them that it was suspending its eight specialist collective investment funds, including its £1bn Brandeaux Student Accommodation fund, following an increase in investor redemption requests and problems with property market liquidity.

In the update to investors, the firm says: “There continue to be significant challenges in terms of liquidity for open ended property funds such as the Brandeaux funds.

“One example of these challenges continues to be the impact of PRA and FCA regulatory initiatives aimed at discouraging IFAs from marketing non PRA and FCA regulated funds.

“The directors believe that this together with other factors including the continuing global economic uncertainty has led to the recent increase in redemption requests and fewer subscriptions received by the Brandeaux funds.

Last month, the FCA issued its final guidance on the banning of the promotion of unregulated collective investment schemes to most UK retail investors. Specialist collective investment funds are among the products included in this ban.

Brandeaux chief executive Roger Boyland and chairman Kay Brandeaux also told investors that the funds are “all performing positively”.

“There is no basis for investors to ‘panic’ or to worry that they have ‘lost all their money’. All Brandeaux funds remain completely solvent and can meet all of their operational cash needs,” they added.


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. I can smell another FCA Section 404 Redress scheme in the offing for these funds, similar to Keydata et al. Does anyone else out there get the same aroma or am I miles away here?

  2. @ Anon 11.21

    It is possible that Brandeaux is more sinned against than sinning. However, the crux of the matter will rest on the valuation of the underlying assets, and whether they are worth what has been previously stated.

    There is, to be fair, a big difference between false accounting and optimistic valuations – and, up to now, all redemptions have been paid in line with valuations.

    However, it is only when the tide goes out that we get to see who’s naked ……. and if the managers have previously relied on inflows to support their valuations.

  3. Redress for what. There has been no investor detriment. The suspension is purely as a result of FCA’s stance on including these funds within UCIS. Clients have not lost money.

  4. Another example of assets that should form holdings of a closed-ended fund or company, where investors buy and sell shares (like an investment trust) and the market sets the value. Illiquid assets are unsuitable for open-ended funds, especially when the valuations aren’t on a mark-to-market basis. No doubt Brandeaux have at least reduced the management charges to reflect more accurately the value of the fund assets though!
    A cursory internet search shows the funds have had liquidity issues for a number of years now, which should at least have prevented IFAs from recommending them in the last few years.

  5. Gosh. Fair play to Gary Jackson.

    I posted at 8ish this morning on his previous Article about omitting the link between the Brandeaux suspension and the FCA’s actions…and 2 hours later he pens a fresh article making that point.

    @Anonymous at 12;29. Redress for what? Well, quite. Its just that the FOS take the view that if a UCIS is illiquid, its value should be £zero when assessing loss and redress. No, really.

    @Clive Moore. What then would be the point of using the funds? If you wrap uncorrelated asset values in a quoted vehicle, the result is ‘man made liquidity’. The paradigm example is the fall in 3i’s portfolio during the GFC (18%) compared with the fall in its share price (82%). There needs to be a better understanding of illiquidity and a greater focus on liquidity profiling/communication with clients, or not using the asset class at all.

  6. That should read ‘man made correlation’ – sorry.

  7. @Man in Black. This is the key issue, if 3i says the portfolio value dropped 18% and the market says it dropped 82% investors could stay in and recover their value or get out at a big loss. With these funds there is no market to get out. If the value of the Brandeaux funds was showing an 82% discount to their (possibly inflated) NAV calculation, we certainly wouldn’t have any liquidity problems as I’m sure there’d be plenty of buyers (even me). The market would deliver a sensible price and investors could make their choice to either remain invested in an asset class known for its illiquidity, but which could still deliver great returns, or could get out if they wanted, they wouldn’t be forced to get out and new investors would be buying at a market price.

    3i must have retained it’s lack of correlation with the market if it fell 82% (the FTSE 100 certainly didn’t fall by this much).

  8. Errr Clive…If the market falls and a certain stock falls at twice the rate, that isn’t a ‘lack of correlation’.

    If somebody buys a share in an illiquid asset, there are a number of ways of valuing it e.g. the realisable value of that investment in its respective market However, the price of the overlaying quoted security is just that – hence why one can refer to premiums and discounts to NAV (those concepts would be meaningless otherwise).

    The price of such an overlaying security might be a good reflection of value if the purpose of the portfolio is particularly short-term in nature and the investor requires 100% daily liquidity. But for everyone else, the ‘fetish of liquidity’ is irrational: most investors need to be able to realise their portfolios within a reasonable time, not within the hour.

    If a portfolio’s value is used for determining (say) income limits, or as collateral or whatever, or if investors just get squeamish at seeing the line at the bottom of the statement plummet in the short-term (and that is part of what they ask you to manage, as it often is) then using the price of the overlaid security represents a problem.

    There are usually two sources allowing investors in open-ended collectives to realise value: (1) liquidation of the underlying portfolio; and (2) matching of buyers to sellers. Usually, with bricks & mortar commercial property funds, (2) is pretty key. It’s usually subject to an ebb-and-flow but the Regulator has effectively killed it off in this and other cases. The result is the same as it would be if they did the same thing with large Life Company property funds – which presumably you believe also need to be converted into quoted Investment Trusts?

    One final point: I can’t comment on Brandeaux’s valuations, but I can appreciate the point you’re making about investor (adviser) confidence in self-generated valuations. Perhaps one of the pluses in the AIFMD – whether the fund is open or closed – is a greater insistence on independence of asset valuations. God knows it would have been helpful in the ARCH/SPL Cells for starters.

  9. @Man in Black – a fair comment on correlation, just not close correlation though and on 3i, a look at the share performance since suggests the market was a bit more accurate than the NAV calculation.

    Brandeaux has had liquidity problems for many years now, certainly time for option 1 to have kicked in and assets to have been sold to deal with redemptions. I can’t think of any reason other than a desire on the part of the managers not to lose the income why this hasn’t happened. Indeed, the same objective could also drive the motivation to keep the NAV high – funds run for the benefit of the managers rather than investors, whatever next, banks and other companies which reward executives ahead of shareholders!

    Perhaps I’m too cynical, but it’s hard not to be.

    Incidentally, I do think it would have been good if lifeco property funds were run on a closed ended basis – however hard advisers explain lack of liquidity to investors, they still don’t seem to get it, so perhaps it would be best to only offer mark to market funds to retail investors.

  10. Jenny Thwaites 3rd July 2013 at 11:15 am

    Is there any joint or class action forum for Brandeaux funds that an individual private investor such as myself to join please? I have a significant investment, and a lack of understanding of a way forward, if indeed there is one!

  11. Myself and my siblings have been trying to redeem a bond owned by our deceased mother for months now, since Oct 2012, with no luck, just constant fobbings off (we will consider payment next month, and so on). We can’t wrap up our mother’s Estate. We are in limbo. Brandeaux seem to have a total discretion to sit on this money for as long as they like. We are now starting to wonder if we will ever see any of the £150k value still owed to us. Anyone else out there in a similar position?

  12. Brandeaux has continued to siphon off mgmt fees while ground rent has been stalling on redemptions for over 2 yrs. IFAs are useless once they’ve made the sale and collected their commissions. Kay Brandeaux bought a 40 million euro Swiss villa 3 yrs ago. This is looking increasingly grim.

  13. Michele Morland 29th August 2013 at 2:14 pm

    I have just found this thread. I am another Brandeaux investor with my money stuck in limbo and join Jenny Thwaites in asking if there is any joint or class action forum that anyone knows about? There must be some way we can get more cooperation from Brandeaux management.

  14. Maybe Brandeaux should sell your investments at discount to improve liquidity?

    You were invested in bricks and mortar – it aint possible to sell a brick at a time so the only way to raise quick liquidity is to sell cheap.

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