Eddie Hobbs new Brendan Investments vehicle

[Mantus]

You are countering again with opinion. Harchibald has just written off the entire syndicate industry. This, is evidently his belief therefore he can never reasonably evaluate on behalf of readers looking for balanced assessment. Gonk, evidently, simply dislikes the opposition at a time Augusta with its very high upfront charges, is launching.

Criticism in the absence of suggesting an optimum model is a bit vacuous ce ne pas? The challenge remains unanswered.

 

[IHateTolkien]

Speaking of unanswered challenges, I see Mantus seems unwilling or unable to answer any of the three burning questions about this product here. I'm sure AAM readers can draw their own conclusions from this.

 

[Duke of Marmalade]

Mantus, vous avez raison, I am tres tres skeptical.

How can it be possibly sustainable that you raise a few bob multiply that by 4 by borrowing spend a small fortune on lawyers, accountants, fund managers, property specialists, buy a few commerical properties and lash out 9% stamp duty and hey presto earn 14% to 37% per annum. It has happened, and mostly on paper, for a very brief period of unique investment conditions.

The party is bound to end sometime, just as all this CDO nonsense is becoming unstuck. They are not unrelated - what will be the cost of the 75% borrowing? Is it going to be available at all over the full 10 years. Certainly very unlikely to be cheap. The days of cheap and easy money were brief but they are now surely gone.

 

[gonk]

You are countering again with opinion.

All of the points I have raised above are facts. Feel free to point out any errors of fact. I agree my final conclusion that the totality of the points raised amounts to "hype" on Brendan Investments' part is my opinion.

Gonk, evidently, simply dislikes the opposition at a time Augusta with its very high upfront charges, is launching.

Brendan Investments is not my "opposition". As I have already stated (and has Mantus has refused to answer, despite being asked several times) I am not involved in the financial services industry. My only connection to Augusta is that I have invested in a previous fund of theirs. As I said, I merely used them as an example I am familiar with. It makes no difference to me if anyone invests with Augusta - I will not benefit in any way.

Mantus, on the other hand, dislikes being called on misrepresentations and errors of fact in his posts. For example:

• Why did you claim Augusta's up front costs are €3m when they are in fact 29% less at €2.33m?
• Why do you not acknowledge the majority of those up front costs is in categories such as stamp duty, legal and professional fees which will be obviously be incurred by Brendan too - the only difference being Brendan have not disclosed what they expect to spend on them?

 

[Mantus]

I accept your bone fides in holding this view which is valid if a little pessimistic. The facts are that buying support from US European and Japanese financial institutions and pension funds is growing very strongly and research indicates that this will continue for many years to come. The Brendan Prospectus attaches CB Richard Ellis analysis validating this view.

To Ihatetolkien, no problems. 1. There isn't another Development and Invt Property syndicate for like for like comparison but plenty of 100% Invt property syndicates with huge upfront costs and sales commissions and higher annual charges run by part-time managers / consultants. Brendan's main directors are 100% full time and better aligned with the bonus structure to investor interests as previously explained. There are no commissions or % of inflow from investors.

2. The Prospectus is regulated not the PLC. It is not a product from a financial institution like a Life Office. It is bypassing these middlemen and is not a regulated product. Neither are schemes from Quinlan Private, Warren Private etc. It is not covered for catastrophic meltdown in European property and land values by the Investor Compensation Scheme, just like any direct property investment.

3. The performance and track record of its Directors is outlined at the public meetings where all questions not already outlined in the Prospectus are answered.

Honestly, criticising this offer which is the most explained, transparent and most scrutinsed collective investment in Irish financial history on the basis of what it did not say in its 90 page Prospectus looks a little trivial.

 

[IHateTolkien]

Mantus,

Thanks for answering my queries. I may not agree with some of your views but I'm enjoying the exchange.

1. Having a lower threshold point than others for payment of bonuses to the directors doesn't align the interests of the investors with the directors any better. It just pays them more. This argument might be valid if the annual fee was set so low that the only way the directors would get paid was via the bonus. But in this instance, the annual fee is high AND the bonus threshold is low. If the fund performs badly, the directors still get paid from the annual management charge.

2. We agree here. My point is that Brendan Investments claim on their Home Page to be committed to "transparency and openess". Surely it would be in keeping with such a claim to make it clear that the product is neither regulated by the Financial Regulator nor party to the Investor Compensation Scheme? My guess is that the smaller punters Brendan are targetting may only have previous experience of dealing with regulated products so a clear indication that this is not one would be transparent and open.

Clients of Kevin Warren or Derek Quinlan will have solicitors and accountants explaing this to them before they commit. How many punters at the €5,000 level can afford to pay a solicitor and/or an accountant to explain the difference between a regulated product and an unregulated one?

3. Okay. If the directors have a proven track record of achieving returns for investors, I'm curious as to why they seem to hide that light under a bushel, choosing only to reveal it at meetings.

Honestly, criticising this offer which is the most explained, transparent and most scrutinsed collective investment in Irish financial history on the basis of what it did not say in its 90 page Prospectus looks a little trivial.

Ah but is it really the 90-page prospectus that will attract most punters into this? Of course not - it's the brochure, the website, the Hobbs PR drive, the media coverage etc.

 

[bramasole]

Good to hear that there is no excitment. The previous night at Raddisson during the match and hosted by NIB there was 230 I'm told. No surprise that its website is very busy given the scale of publicity. To be accurate, the promoters cannot be accused of hype and risks are explained at length but the media reaction is a different matter and certainly can be criticised for inaccurate and misleading headlines and copy.

Was the presentation professional or razzle dazzle?

It was the opposite of razzle dazzle. Apart from EH, who is obviously used to public speaking, the others seemed just professional (although one speaker in particular was so nervous I felt sorry for him). The only razzle dazzle I would say came from the NIB guy.

 

[Mantus]

So much for hype then, but back to the exchange on value / cost. Both Harchibald and Gonk reckon its too expensive so I repeat my challenge to get out of the terraces and come play;

What should the fee charging structure be to manage the assets and produce profits using proper professional services? You are starting from the belief that all syndicated property schemes are a rip off so design a notional one, properly costed and report back. Your model must deliver acceptable quality of mgt to investors and make a profit to be credible. You decide the optimum vehicle to deliver transparency and you decide the markets, the marketing and the strategy of your notional vehicle.

 

[Duplex]

So much for hype then, but back to the exchange on value / cost. Both Harchibald and Gonk reckon its too expensive so I repeat my challenge to get out of the terraces and come play;

What should the fee charging structure be to manage the assets and produce profits using proper professional services? You are starting from the belief that all syndicated property schemes are a rip off so design a notional one, properly costed and report back. Your model must deliver acceptable quality of mgt to investors and make a profit to be credible. You decide the optimum vehicle to deliver transparency and you decide the markets, the marketing and the strategy of your notional vehicle.

Surely its the strength of the underlying assets which is the principle determinant of the success of a fund. With this in mind will the Brendan Fund be buying in London, or elsewhere in the UK in light of the rapid decline in the commercial market I wonder.

Commercial property in August failed to deliver a positive monthly total return for the first time since December 1992, data used for property derivatives trading showed on Friday.
The data, based on Investment Property Databank's (IPD) benchmark UK All-Property index, also showed negative capital growth in all three of the country's main property sectors -- retail, industrial, and offices.

[broken link removed]

 

[Duke of Marmalade]

So much for hype then, but back to the exchange on value / cost. Both Harchibald and Gonk reckon its too expensive so I repeat my challenge to get out of the terraces and come play;

What should the fee charging structure be to manage the assets and produce profits using proper professional services? You are starting from the belief that all syndicated property schemes are a rip off so design a notional one, properly costed and report back. Your model must deliver acceptable quality of mgt to investors and make a profit to be credible. You decide the optimum vehicle to deliver transparency and you decide the markets, the marketing and the strategy of your notional vehicle.

Mantus, I can no more design a notional model of this kind that works than I could design that moon project. The concept is unsustainable. Maybe EH will do us all a favour. His scheme will have such intense scrutiny that even after a couple of years the media will be baying for info - especially on that promised grey market.

These unprecedented conditions can't continue for ever and IMHO the signs are all there from other events in the credit markets, that the party is heading big time towards the hangover phase. We will be seeing grey market prices of 50c in the euro and these preposterous money for ould rope schemes will go the way of that other nonsense Geared Trackers. He probably will decline the Late Late Show follow up invite.

Of course we are always going to have syndicates of profssionals in the building game who spot an opportunity and need bank financing.

But this chain letter idea of give me a few bob, I'll get the banks to quadruple that with loans and then off to the property tables to do a bit of speculating and sure how can you miss will surely come unstuck and very soon.:mad:

 

[Mantus]

Time will tell but the buying support for the Pan european commercial property market is unlikely to slow if economic conditions remain reasonable especially German GDP growth @2% to 3% range. Harchibald I genuinely respect your very bearish view which should see people buy gold if it is right, but I think its a far too pessimistic analysis of things today.

In the short term ie into 2008 Q1 and Q2 Brendan Plc may be getting its timing just right if there is a decline in prices in Ireland for development land. Moreover if your assessment of an iminent decline in UK prices is right Brendan may be afforded a good chance to pick up Investment Property at cheaper prices and less compressed rental yields which would be welcome given the relatively higher UK base rate at 5.75%. If the tightening in banking spills into lower prices due to depressed demand over coming months cash will be king and Brendan plc will should have plenty of that.

Once again thanks for continuing this exchange.

 

[Duke of Marmalade]

Mantus,

I am a simple bear, here's how I see the divy out if EH's promise to quadruple the punters' money comes to fruition.

Assuming punters put up 50M then

Punters gain 150M
Banks get 200M in interest
Taxman gets from Brendan 75M
Promoters/Management get 65M
Other advisers/professionals get 20M

That's 510M on an outlay of 50M for very little real added economic value.

That cannot be sustained in a rational economic system. I hope you agree and that we are only arguing about the timing of when rationality sets in. You might think this will take some time, I think the signs are so apparent that the party is already over.

BTW do you agree with me on that tax point, that the taxation levels are between 30% and 40%?

 

[MichaelDes]

If the tightening in banking spills into lower prices due to depressed demand over coming months cash will be king and Brendan plc will should have plenty of that.

Once again thanks for continuing this exchange.

Bear markets in property take much long to fix than equity markets..typically 4 years for any favourable return of sentiment. Just because it is lower does not mean it has bottomed.

 

[Duke of Marmalade]

I'm beginning to feel a bit of an outsider here, my experience being in conventional retail investment. I was at first considerably swayed by Gonk's posting but to be fair Mantus did make a partial rebuttal. Here's how I mark the card.

1. Charges

Charges are very high from my conventional perspective but I am persuaded that they are typical for the genre. M 1 G 0

2. Term

The term is again very long from a conventional perspective but M's 7 - 10 point is valid and again this is typical of the genre. However, M blew this penalty kick by raising the 23% tax red herring. M 0 G 0

3. Germany

Oops! Own goal by G. M 1 G 0

4. Specific projects

I thought this was a very strong point made by G. M would seem to agree if indeed G was correct and there were no specific projects but argues that G has this wrong. I read the prospectus and brochure again. These very much point towards G's interpretation that the business plan is aspirational. I am not sure that roadshow presentations redress the matter. M 0 G 1.

5. Experience of the management team

Hard to tell. Throwing around a few big figures doesn't really mean much. I think this will be the stumbling block for most HNW investors, who will be completely unimpressed by the EH factor and probably unconvinced of the strength in depth of the rest of the team. However, I am going to mark this a draw. M 0 G 0.

6. Consumer protection

You won't be surprised to hear that I am 100% behind G on this one. I won't repeat all my arguments, but given the EH factor, I am greatly disappointed that He did not volunteer the sort of transparent disclosures (e.g. RIY) that He has championed for decades but happen not to apply here because this is a new legal form. M 0 G 1

7. Gearing squared

Not suitable for any constituency. M 0 G 1.

Overall score: Mantus 2 Gonk 3. Congratulations Gonk

 

[Mantus]

Thanks for the partial refereeing of Gonk's partial agenda, but the crux is a Gonk response to the position put to him. While you have responded saying you can't deal with it, he claims vast experience in syndicates and displays deep knowledge of Augusta, perhaps as a scheme designer himself. So here it is again Gonk;

What should the fee charging structure be to manage the assets and produce profits using proper professional services? You are starting from the belief that this property scheme is a rip off so design a notional one, properly costed and report back. Your model must deliver acceptable quality of mgt to investors and make a profit to be credible. You decide the optimum vehicle to deliver transparency and you decide the markets, the marketing and the strategy of your notional vehicle.

 

[Duke of Marmalade]

Mantus, I know I am a bit peripheral to this heavyweight contest.

You are wont to demand answers to your questions. and I have attempted to do so, although I realise it is Gonk you are prodding.

Will you indulge me and answer a question I put to you.

Do you agree that the overall effect of taxation (ignoring stamp duty) is between 30% and 40% plus any denied foreign witholding tax?

 

[Mantus]

Sorry, first I'm no tax expert to be frank with you, but as a PLC it will be no different to any other PLC in the taxes it pays on profits. Most of these will arise outside of the Irish tax jurisdiction and I presume DTA's between EU countries will prevent double taxation. I'm not up on the forensics of UK, German and Portuguese tax so I'm reluctant to hazard the aggregate rate the PLC will pay. The MD, Vincent Regan is a tax expert which will help, former Tax Partner at Deloitte and Revenue Auditor.

Obviously before shareholders pay CGT, the PLC itself will have paid taxes but using offsets like interest on borrowings etc as offsets.

Gross Roll Up funds must pay tax on overseas earnings as you know, and the profit to policyholders is 23%. In some cases such as deemed "Offshore Funds" like overseas foreign companies established to invest in property I think the charge can be at 41%. But, once again I'm not qualified to give a definitive answer to your question.

 

[gonk]

Gonk your sensitivity to Augustus syndicate is telling. Your cons are not supported by the facts.

I disagree.

1 High charges. This is a false conclusion when measured against other schemes even those 100% iNVT as demonstrated. Augustus 2.3m upfront mostly commission rebates, 0.75% amc, Hibernian Life Res Fund 1.45% to 2.55% on Gross Fund etc.

Brendan's main charges are an annual 1% management charge and a final performance fee of 20% of gains over 8% p.a. The corresponding charges in the Augusta fund are 0.75% and 15% of gains over 12.5% p.a.

Augusta has a 3% entry charge and while Brendan claims to have none, the prospectus notes that an estimated €750k costs of the offer will be charged to investors, which would effectively be a 1.5% entry charge if the original target of €50m in shareholders funds is raised.

The Augusta fund charges 3 million in upfront fees on equity of 20.

On the subject of supporting your comments with facts I note you have effectively retracted your earlier exagerrated statement above of Augusta's upfront costs. While demanding answers of me, you have failed to respond to my point that only €600k of the €2.3m is the entry charge, and the balance comprises setup and property acquisition costs such as tax and legal costs, which Brendan will also incur, but has not quantified.

If Brendan meets its target of a 16% IRR its charges on a €5k investments will comprise:

1. Cost of offer: €75
2. Annual 1% management charge: €1,236.65
3. Final performance fee: €2,252.51

Total: €3,564.15 (71.3%)

This assumes for simplicity that the 16% p.a. compound growth is achieved evenly over the 10 year investment period.

The corresponding charges in the Augusta fund, if it ran for ten years (I know it is not going to, but to compare similar timeframes) and also achieved 16% p.a. would be:

1. Entry fee: €150
2. Annual 0.75% management charge: €927.48
3. Final performance fee: €873.09

Total: €1,950.57 (39.0%)

Please explain how Augusta's fees are dearer. And please stop harping on about up front costs you know Brendan will also incur.

2. Its 7 to 10 which is actually better given the property cycle and it avoids the 23% tax payout on the 8th anniversary which is now compressing terms for syndicates.

If you're willing and able to lock up your money for 10 years, this may be an advantage. Lots of people (including me) would rather not.

3. This is the funniest because Brendan is 60% investing in Germany which you like but have listed as a con.

I see no inconsistency between accepting that good German commercial property is a reasonable investment at present and concluding that the proposed geographical spread as a whole is not, because of the inclusion of the UK and in particular Ireland. Personally, I would not invest a cent in Irish property at present. The Irish banks agree with me - they have been busy doing sales and leasebacks on as many of their own premises as they can.

4. Again an false statement as outlined in the roadshows and reported in the media, including a Formula 1. Project on 700 acres Algarve 5 Star Hotel, Dresden Hotel 20 yr lease 6.5% yield etc.

I'm only going on what's in the prospectus and brochure. If Brendan is able to provide oral presentations on these at the roadshows, why didn't it provide detailed written information in its much vaunted prospectus?

5. The MD has 600m and another Director 1 billion GDV experience..

Once again, my point is they have no track record as a team.

6. The Prospectus is regulated and there has been enormous scrutiny. Your "worry" is unconvincing given you support and invest in schemes with zero scrutiny and regulation.

The fact that the prospectus is regulated is being used to obfuscate the fact that as you well know the investment itself is not. My concern about its unregulated status is on the basis that the investment is being mass-marketed to small investors on the back of Eddie Hobbs's reputation. I took professional advice before making my investment. This product is being sold on an execution-only basis and the distinction between regulation of the prospectus and the investment will be lost on many.

7. The gearing from NIB is clearly aimed at HNW based on the criteria and is subject to CPC. Once again a false statement.

Sorry, what has the net worth of the investors to do with it? The point is that borrowing in a grossly tax-inefficient way to invest in another geared product is unsuitable for anyone.

As you can see Gonk, all of your cons either demonstrate that you haven't been researching properly even on this thread or you simply don't want to disengage from posting misinformation.

Misinformation like this perhaps?

he claims vast experience in syndicates and displays deep knowledge of Augusta, perhaps as a scheme designer himself.

I do not have "vast experience", but I have invested in several, and in the course of that have reviewed a number of others. I have already stated I have no connection with Augusta except as an investor in an earlier fund. I have no view on the merits of their current fund and I certainly do not recommend anyone invests in it. All I do say, and I think I have clearly demonstrated above, is that their overall fees are much lower than Brendan's, despite your attempts to claim otherwise, including exagerration of the up front costs and misrepresentation of where they were being spent. The "deep knowledge" I got of these costs was from the Augusta brochure.

As I have already stated I have no connection with the financial services industry, your speculation that I'm a "scheme designer" implies that I may be lying. I am not and I would like you withdraw your comment.

 

[Mantus]

Gonk, you use the language of a player and your adherence to Augusta is not one common to investors but I'm happy to withdraw the implication on the basis of your flawed analysis of costs.

The correct mathematical method is to calculate the opportunity cost of the extra upfront costs as an impact on rolled up profits. Instead you begin with a common IRR and work back, an understandable but amateur mistake. The loss in future profit earning in the Augusta model from the % payment upfront is the key - redo the calc and you will see.

Secondly Brendan upfront fee is flat and not a % which is hugely expensive for large inflows. The Brendan flat fee will diminish as a fixed cost as it closes in on equity injection probably ten times bigger than Augusta, eg @200m it is 0.375%. It is therefore more efficient and will, in the real market place, generate better economies of scale.

 

[gonk]

Gonk, you use the language of a player and your adherence to Augusta is not one common to investors but I'm happy to withdraw the implication on the basis of your flawed analysis of costs.

The correct mathematical method is to calculate the opportunity cost of the extra upfront costs as an impact on rolled up profits. Instead you begin with a common IRR and work back, an understandable but amateur mistake. The loss in future profit earning in the Augusta model from the % payment upfront is the key - redo the calc and you will see.

Please don't patronise me. You are wilfully missing the point that the vast majority of the up front costs you refer to in the Augusta fund are not fees charged by the promoters but are in areas where Brendan accepts in its prospectus it will also incur up front costs, such as stamp duty.

However, despite its claimed commitment to transparency, it has made no effort to quantify them. Therefore, there is no basis to suppose they will be significantly lower in the Brendan fund than the Augusta fund. The actual entry fee, even if it was zero in the Brendan fund, makes a negligible difference to the final comparison of investment outcomes. It is absolutely dwarfed by Brendan's extortionate performance fee. I note, despite being repeatedly challenged to do so, you cannot identify any other fund with a performance fee as high on so low a performance threshold.

You're also missing the point that in both funds, performance and bonuses will be calculated after allowing for all such fees and costs.

As for my "attachment" to the Augusta fund, I repeat I am only using it to provide a worked example of how Brendan's claim of lower overall fees is baseless. The difference in the two performance fees is 920% of the €150 Augusta entry fee.