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Cru funds’ underlying assets down up to 30%, says Arch

Arch’s fair value estimate for one of the Guernsey-listed cell companies under its funds is currently 30 per cent below its last published net asset value, Money Marketing has learnt.

Advisers have told Money Marketing that Arch Financial Products chief investment officer Michael Derks revealed the figures at an IFA briefing on the suspended Arch cru funds yesterday at the Hyatt Regency hotel in London.

Derks is understood to have told advisers that the average discount between the last published net asset value across the 23 Guernsey cells and Arch’s fair value estimates is between 10 and 15 per cent, but that for the Arch private finance sterling IC limited sterling share class the discount was nearer 30 per cent.

He said this is due to impairments that Arch may be aware of, but that Bourdeaux Services, which calculates the monthly net asset value for the Guernsey stock exchange, may not yet have taken into account because of a time lag.

Also speaking at the IFA briefing yesterday, cru founder Jon Maguire said the current turbulent markets have shown the funds’ structure to be unsuitable for retail investors.

He reportedly said: “Now what we are acutely aware of is that this structure doesn’t work for retail, unfortunately.

“We thought it did, but obviously it hasn’t, so we’ve got to address the issue of product structure the sooner the better.”

cru says the structure was set up with Capita and had the approval of the FSA.

Maguire said that one of the contributory factors to the fund suspensions may have been IFAs switching out of the investment specialist portfolio at the end of 2008 to de-risk clients’ portfolios.

He also said that out of the £60m inflows into the CF Arch cru finance fund, which launched in November last year, around £25m of these may have been from the investment specialist portfolio.

Maguire predicted the suspension was likely to last for another three to four months or perhaps longer, and said that the secondary markets for the cell companies’ underlying assets might not return until 2010.

Cru has also described a “wall of silence” between Capita and to a lesser extent Arch with regards to the funds is exacerbating IFA concerns.

Speaking at a press conference following the event, cru confirmed that the suspension has been extended to the end of May after Capita wrote a letter to investors over the weekend.

However, cru managing director Marc Ainscough said: “It will take a lot longer than that to sort out given the complicated structures and difficult climate.”

Ainscough and investor committee chairman Kevan Ward said that they will seek to meet with Capita next week, with a specific focus on addressing those investors relying on regular income from the funds.

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