# Investors in Brendan Investments to lose 90% of their money?



## Brendan Burgess (1 Dec 2016)

According to the Irish Times, everything seems to have gone wrong for them. 


The fund’s first investment, an office block in [broken link removed], went awry after the tenant made extensive changes to the building before going bust, costing Bipep a small fortune to put right when it got the keys back.

It then switched focus to the US. It embarked on a risky foray into the [broken link removed] abandoned homes market, which has blown up in the fund’s face in recent years. City rules clamping down on lead-based paint, following a drinking water crisis, required the replacement of doors and windows in scores of its properties, wiping out millions on these and other repairs. Its remaining 70 houses are now for sale in lots of 10 at a time.


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## elcato (1 Dec 2016)

> If Bipep had gone well, this is where Hobbs could have made big money – BIPM was to get an annual management fee of about 1 per cent of the investment portfolio, with bonuses for its performance.
> 
> Hobbs sold his BIPM shares to Regan and O’Neill in October 2014, by which time it had earned about €2 million in fees from Bipep. In 2012 alone, BIPM was paid close to €500,000 from investors’ funds.


So did the management fee go straight into their sky rocket or was there running costs way in excess to this ? Please tell me the latter.


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## mathepac (1 Dec 2016)

So the real money was in managing the fund, whether it lost or made money. Well done lads. The following quotes are from the same report linked to Brendan.

"*Management fees*
Hobbs, along with his Bipep co-founders, was also a shareholder in a related company, Brendan Investments Property Management (BIPM), which was contracted to manage Bipep on behalf of the investors. 

If Bipep had gone well, this is where Hobbs could have made big money – BIPM was to get an annual management fee of about 1 per cent of the investment portfolio, with bonuses for its performance.

Hobbs sold his BIPM shares to Regan and O’Neill in October 2014, by which time it had earned about €2 million in fees from Bipep. In 2012 alone, BIPM was paid close to €500,000 from investors’ funds."

"In the last five years for which accounts have been filed, Bipep has made a loss of €2.4 million (2014), a loss of €1.87 million (2013), a profit of €775,000 (2012), a profit of €874,000 (2011), and a loss of €3.3 million (2010).

Show me the money, indeed."


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## Brendan Burgess (1 Dec 2016)

The investors invested €13m. The company borrowed money, so at one stage the portfolio was worth €26m. 
1% of €26m is €260k. 
€260k x 8 years is €2m. 

So it's about the right ballpark. Obviously, the properties are worth a lot less now. 

It would be an expensive business to manage problem properties in Germany and Detroit. 

I doubt very much if any of the promoters have made much, if any, money from this. 

Brendan


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## Steven Barrett (1 Dec 2016)

Consumer champion my back. When property syndicates were all the rage during the Celtic Tiger, the minimum premium was €100,000. There is a reason for this. It's a risky investment with the money locked away for years. It wasn't suitable people who only had a few quid saved away. They lowered the minimum price to €5,000 and used Hobbs' popularity to market the thing...sure isn't he the great lad off the telly who gives out about the banks.

It was a disaster from the beginning. When the property market went bust, they should have kept the cash and paid the money back to investors less fees. They might have got 90% of their money back. Instead they decided to gamble on being slum landlords in Detroit where at one stage you could buy a house for $1,000!!!!

This is the kind of stuff that the regualtor should be all over...except you'll probably find that it's an unregulated investment, so nothing will be done.


Steven
www.bluewaterfp.ie


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## Dan Murray (1 Dec 2016)

SBarrett said:


> Consumer champion my back




Incidentally, I thought there was a thread about this investment back in the day - but when I put Hobbs into the search engine, the answers seem to be limited to 2010? Am I doing something silly?


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## trasneoir (1 Dec 2016)

Does somebody have the original coverage of how this fund was sold?


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## Sophrosyne (1 Dec 2016)

Dan Murray said:


> Incidentally, I thought there was a thread about this investment back in the day - but when I put Hobbs into the search engine, the answers seem to be limited to 2010? Am I doing something silly?



This was one - there may have been others.

http://www.askaboutmoney.com/thread...ndan-investments-vehicle-summary-views.63791/


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## mathepac (2 Dec 2016)

Brendan Burgess said:


> It would be an expensive business to manage problem properties in Germany and Detroit.
> 
> I doubt very much if any of the promoters have made much, if any, money from this.


A good reason not to invest in either Germany or Detroit I'd have thought, knowing nothing about investing. At a guess I'd say the promoters have come out of the entire shambles substantially better off then the investors, but then isn't that always the point of such schemes.

Just as an aside, why would the promoters have a management company whose sole purpose was to charge fees, payable to the promoters, to manage the scheme they dreamed up? It shouts beware to me. The only costs the management company picked up would have been the fees the promoters charged. All the other legal fees etc. would have been paid by the main fund.


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## Brendan Burgess (2 Dec 2016)

From reading that summary, I had forgotten that they set up a facility to allow people to borrow to invest in Brendan Investments. 

People had a narrow escape. There was talk about raising €1 billion, but in the end investors put in only €13m. 

I think that the almost universal media negative analysis saved people a lot of money.

Brendan


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## Ceist Beag (2 Dec 2016)

I remember this when it started and like most I was interested enough to read up on it. I never really considered investing but I do remember at the time that the analysis on here very much put me off the idea ... and that analysis looks to have been bang on with the concerns outlined at the time.


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## Bronte (2 Dec 2016)

Sophrosyne said:


> This was one - there may have been others.
> 
> http://www.askaboutmoney.com/thread...ndan-investments-vehicle-summary-views.63791/



My goodness is that thread interesting.  I sincerly suspect an interested party too there in the posting.  Burgess and the Duke were spot on.

So who did invest in this 'fund'?  Ordinary people with 5K.  That's a lot of people to get to 13 million so it can't be just that type of person surely. Is there any newspaper article about the people who invested.

And who made money? And how much.

It looks like a very risky product to me, who protects consumers then and more pointedly now.

http://www.irishtimes.com/business/...d-firm-to-lose-90-of-investors-cash-1.2889232


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## ronaldo (2 Dec 2016)

Here's the main thread:

http://www.askaboutmoney.com/threads/eddie-hobbs-new-brendan-investments-vehicle.63049/

And here is a thread discussing the legal threats sent via PM to some of those speaking out against the investment - allegedly from people with an interest in a positive public perception of the upside to the investment:

http://www.askaboutmoney.com/threads/we-have-banned-the-hydra.65879/


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## Sophrosyne (3 Dec 2016)

ronaldo said:


> And here is a thread discussing the legal threats sent via PM to some of those speaking out against the investment - allegedly from people with an interest in a positive public perception of the upside to the investment:
> 
> http://www.askaboutmoney.com/threads/we-have-banned-the-hydra.65879/



This thread is extraordinary.


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## MrEarl (4 Dec 2016)

SBarrett said:


> ....It was a disaster from the beginning. When the property market went bust, they should have kept the cash and paid the money back to investors less fees. They might have got 90% of their money back. Instead they decided to gamble on being slum landlords in Detroit where at one stage you could buy a house for $1,000!!!!
> 
> Steven
> www.bluewaterfp.ie



How they concluded that changing investment strategy from investing in Germany (a steady economy with no FX risk etc. and even a relatively safe long term play during the crash) to investing in Detroit was a good thing I just do not understand, sure it's as mad as changing investment strategy from buying Irish Government debt to gambling with the funds at a blackjack table in Vegas !


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## Jim2007 (4 Dec 2016)

MrEarl said:


> How they concluded that changing investment strategy from investing in Germany (a steady economy with no FX risk etc. and even a relatively safe long term play during the crash) to investing in Detroit was a good thing I just do not understand, sure it's as mad as changing investment strategy from buying Irish Government debt to gambling with the funds at a blackjack table in Vegas !



But you are not talking about an investment grade fund!  You are talking about something that would not even qualify as a penny stock in the real world.  This was speculation from day one and should never ever have been in the average investor portfolio that is the hard less that needs to be learned.


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## MrEarl (5 Dec 2016)

Jim2007 said:


> But you are not talking about an investment grade fund!  ....



No, but you are still talking about a product that was being managed by the "wonderful" Mr. Hobbs ....consumer champion, cares about the public etc. etc.

Also, there's a significantly higher risk introdued when you bring in currency exposure, investing in a different continent etc.  Was this covered out properly with the investors, because if not then the investors might have grounds to take action against the directors ?


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## Brendan Burgess (5 Dec 2016)

MrEarl said:


> Was this covered out properly with the investors, because if not then the investors might have grounds to take action against the directors ?



I think we need a bit of perspective on this.  As one of the sternest critics at the time, I can give this perspective. 

This was an unregulated investment.

The prospectus was regulated by the Financial Regulator.

There were some deficiencies in the original prospectus but they were subsequently corrected. Those who had invested were notified accordingly.

The prospectus did note the risks involved. Virtually every public commentator was negative towards this investment pointing out the very high risks involved and that the celebrity of the chief promoter was not a good enough reason for investing.

As a result, they raised €13m instead of the €1billion they were expecting.

There have been other geared investments where people have lost all or most of their investment.  These raised far more money and were managed by the likes of AIB.  The Fifth AIB Belfry Fund is just one example of this. 

The average investment was €20,000.
The fund was launched in September 2007. The property market was already showing signs of stress. Notwithstanding that, people chose to take the risk.  If Brendan had got lucky, the investors could have got a good return, enhanced by the gearing.  It didn't work out and they lost most of their money.

What do we want? When a risky investment goes well, the investors get all the benefit? When it loses money, they sue?

Brendan


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## mathepac (5 Dec 2016)

Having the promoters take the same risk as the investors without the golden parachute of a management company milking the fund of borrowed money would be a start.


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## Brendan Burgess (5 Dec 2016)

We pointed out at the time that the fees seemed a bit high. But I would not expect the fund managers to work for nothing.  

Brendan


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## Bronte (5 Dec 2016)

Why does the regulator have a say on the prospectus, but not on the fund.

I think it would be helpful on page one of such things that in big bold red print it says this is a risky product and you can lose all your investment.


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## Dan Murray (5 Dec 2016)

Brendan Burgess said:


> The prospectus was regulated by the Financial Regulator.



Quis custodiet ipsos custodes?

(generally valid and especially so here!)


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## Bronte (5 Dec 2016)

My bank here called me in for an assessment as to risk because of cash I had on deposit with them.

It's probably a state enforced obligation. It took quite a while.  Anyway turns out I'm risk averse so they basically had no 'product' for me. And what they did show me, it was made clear the risks. 

Do they do that on Ireland?


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## MrEarl (5 Dec 2016)

Brendan Burgess said:


> I think we need a bit of perspective on this. .....



More than fair, thank you for the details provided Mr. Burgess.



Brendan Burgess said:


> What do we want? When a risky investment goes well, the investors get all the benefit? When it loses money, they sue?
> 
> Brendan



Sounds good to me 

... on a more serious note, clear big bold warnings about the risks would be a welcome advance (much like the consumer protection stuff).  Likewise, I would like to see these type of funds forced to design their fees and income in such a manner that more of the professional and management fees are subject to the success of the fund.


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## mathepac (5 Dec 2016)

But why not work as fund managers from within the organisation making the disastrous investments? Presumably they could draw down directors' fees and other remuneration / bonuses from there without the complication and additional overhead of yet another company?


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## Bronte (6 Dec 2016)

mathepac said:


> But why not work as fund managers from within the organisation making the disastrous investments? Presumably they could draw down directors' fees and other remuneration / bonuses from there without the complication and additional overhead of yet another company?



What that not done to hide what was going on.  No illegal but sneaky surely.  I think all of this stuff should be in the prospectus.


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## Steven Barrett (6 Dec 2016)

Bronte said:


> My bank here called me in for an assessment as to risk because of cash I had on deposit with them.
> 
> It's probably a state enforced obligation. It took quite a while.  Anyway turns out I'm risk averse so they basically had no 'product' for me. And what they did show me, it was made clear the risks.
> 
> Do they do that on Ireland?



Banks go through deposit holders accounts to see who has a balance over a certain amount and over a certain amount of time. They then try to sell them investment products. I suspect your bank was doing the same thing. 

Steven
www.bluewaterfp.ie


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## Steven Barrett (6 Dec 2016)

MrEarl said:


> ... on a more serious note, clear big bold warnings about the risks would be a welcome advance (much like the consumer protection stuff).  Likewise, I would like to see these type of funds forced to design their fees and income in such a manner that more of the professional and management fees are subject to the success of the fund.



a lot of investment do that and guess what...people complain about that too! 

It costs a lot of money to run a fund, especially a property fund and the investors are the ones that pay for it. All charges should be more transparent so investors know how much they are paying in charges and fees. 


Steven
www.bluewaterfp.ie


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## MrEarl (6 Dec 2016)

SBarrett said:


> .....It costs a lot of money to run a fund, especially a property fund and the investors are the ones that pay for it. All charges should be more transparent so investors know how much they are paying in charges and fees.



I fully appreciate that Steven, but it's rarely a breakeven type situation with the managers often very well paid for doing a "part time" job, particularly if we look at the likes of commercial property funds.  As I said above, let more of the professional fees and staff rewards be subject to the ultimate success of the fund.


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## Brendan Burgess (11 Feb 2017)

Interesting interview with Eddie and Mark Paul  in today's Irish Times

http://www.irishtimes.com/business/...stments-and-the-disaster-in-detroit-1.2970926

_Hobbs admits that Bipep lost money on disastrous deals, that it misjudged the market and that its management company came close to collapse. Some co-founders now barely speak to each other.

“I can be questioned for my judgment, no doubt about that,” he says. “But I’ll defend my integrity. I’m embarrassed by what has happened. You can see I’m annoyed I have to explain it, but I don’t engage in chicanery.”

...

“We could have stayed in Germany and got nowhere. The US was the only western economy recovering,” says Hobbs.

However, shareholders are angry that BIPM could have cleaned up at home if it had waited a while longer, as Ireland soon became rich pickings for vultures.

...

The board signed off on the US foray. But, according to Hobbs, it was O’Neill and Regan who first suggested investing in Detroit property. Where did they get the idea?


“I don’t know,” says Hobbs, insisting that the executives did all of the “investigative work and pathfinding”.

...

BIPM had by then taken €2 million in fees from Bipep, but Hobbs insists he never got a penny. He showed a letter from accountants appearing to confirm this.

...
Since Flanagan and Hobbs left the fund two years ago, what has happened to drive losses from 50 per cent to 90 per cent? Both men say they haven’t been told.

...
Flanagan and Hobbs says they acted correctly. Hobbs regrets what happened.

“It’s handy [for some] that I am a lightning rod,” he says. “But do I accept responsibility? Of course I do. I’m not trying to shirk it.”_


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## Brendan Burgess (11 Feb 2017)

As I said in September 2007: 

*Eddie Hobbs new Brendan Investments vehicle - summary views*

"The Management Team may be property experts, but they are not household names for successful property investment. In any event, most of the investment strategy in the prospectus is about what a firm of auctioneers CBRE tells them about the property market. If they are such experts themselves, why are they relying so much on CBRE and presumably paying big fees to them?"

And this really was the key issue.  They had no special expertise. And they were investing in geographic locations which they knew nothing about. 

Brendan


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## Bank Manager (11 Feb 2017)

... and once again he starts to play the 'integrity' card.  I got castigated for questioning this guy as far back as 2005.  Played in a league way above his capability, where he really made his name by telling people to amalgamate all their debt in to one credit union loan, and that was the sum total of his ingenuity.  Feel genuinely sorry for those that have lost money, the only bright spot being that they failed to reach their target of E1bn as undoubtedly they would have lost that too (after creaming off their own fees).


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## Duke of Marmalade (11 Feb 2017)

So right _Boss_. Most of the criticism was leveled at the riskiness and the costs.  But the real elephant in the room was that these guys hadn't a clue. They actually got lucky; by the time they had accumulated their war chest the property bubble had burst - they had luckily escaped this event.  It would have taken a special kind of talent to lose on property from that position.  They clearly had that talent.


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## MrEarl (12 Feb 2017)

These guys were far from the only ones who didn't have a clue though.... there were new funds being set up all over the country, trying to sell us stuff they didn't understand or have experience in, not alone the investors who were being asked to put money with them.

Eddie would try and sell sand to the arabs... he was involved in Taylor Investments in the 90s, it was Brendan Investments in the 00s, so people can make their own decisions on his track record.

Personally, I just hope that we don't now see RTE handing him another paycheck - they successfully squander plenty of funds elsewhere, without giving this fella a slice of the Donnybrook property sale proceeds next !


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## noproblem (12 Feb 2017)

Agree with a lot of what has been said but at the end of the day they say, "a fool and his money are easily parted". Now, I don't altogether agree that all who invest are fools but if they are then I am one of them. I and some friends invested multiples of €100k each in what was known as,  The Polska Fund, which was a property based investment in Poland and to say we were burned is putting it mildly. However, we went in with our eyes opened, at least I did and learned a big lesson. We weren't the first and we won't be the last. It wasn't the only time I got stuffed either, but there you go. I'm alive, didn't borrow the money and live to fight another day. You simply have to, or else?


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## Duke of Marmalade (13 Mar 2017)

I see from this morning's IT that the latest prediction is total wipeout.


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