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UK Residential Property as an investment asset class

Investors who want to try and get in at the bottom of the housing market will find plenty of  property funds to cater for their needs. Tony Sanchez, director of alternative investment consultancy Clara Capital, explores the prospects for UK residential property funds.

Since the beginning of the year and even before, cool-headed professional investors have been slipping quietly back into the UK’s battered residential property market to pick through the wreckage of distressed re-sales and deals from desperate developers. Now, as the monthly house price statistics finally indicate that the market appears to have troughed, private investors are starting to look with renewed interest at the potential for getting in at the bottom – and a raft of specialist property funds has been launched to cater for their needs.

The fundamentals are certainly interesting. According to Land Registry figures, average prices in England and Wales had fallen 17 per cent from their high point around November 2007 to April this year, since when there has been a small recovery. But prices are still down more than 15 per cent on the peak.

Whilst the Nationwide House Price Index disappointed homeowners with August‘s number; showing a drop of 0.6% for the month, over the last 12 months the index has been stable (just 0.4% lower) and over varying time periods this barometer of UK residential property has outperformed the benchmark FTSE 100 – most starkly since the start of the new millennium. This UK residential property outperformance vs. the FTSE 100 holds true also if you are to start the comparison from 1990 or even from the early 80s (Nationwide Index is up nearly 560% since 1984 vs. FTSE 100 up just over 500%). This outperformance has also come with lower volatility than stock market returns and volatility in the stock market is likely to persist.

Global equity markets will likely remain volatile whilst the European peripheral crisis remains unresolved and ‘the Street’ continues to reassess global growth prospects (note the recent multiple percentage point swings intraday in equity markets around key macro data points e.g. manufacturing surveys from Philadelphia and Chicago)… In Europe, near term political risks surrounding the approval of the EFSF by national governments and longer term the drag of austerity, slow growth and possible restructurings (namely Greece) could sustain recent volatility. With globalisation, free trade and free capital markets amongst other things, global stock market indices are highly correlated – the UK property market is less so and thus offers investors benefits in a multi-asset portfolio even if equity market exposure is global.

There has also been a big change in the investment market since the beginning of the year, with a substantial number of high net worth investors with cash – many of whom have never held residential property before – taking the view that bricks and mortar are now a very good investment.”

There are several other big pluses as far as investment via a collective investment scheme is concerned. First, although these funds are only available to ‘sophisticated investors’ through financial advisers, they provide access to a portfolio of properties. For relatively cautious investors, that’s vastly preferable to tying up large sums of money in a single, illiquid asset.

Second, at a time when buy-to-let investors may be deterred by the difficulties of finding a large enough mortgage deposit, some funds offer geared exposure without having to go down that route at all. And third, unlike direct property holdings, residential property fund investments can be bought and held tax-efficiently as part of a self-invested personal pension (Sipp).

What’s on offer

Walls & Futures London Growth Fund

A development fund investing in residential properties in Prime Central and South West London. It has a target return of 10.49% IRR over its five year life.

Returns are generated by adding value to period properties through refurbishment and redevelopment and further enhanced by rental income and capital growth. This approach carries significantly less risk than relying on market movements.

Rather than taking a scatter gun approach and investing throughout the UK the fund is targeting very specific locations in London where prices have remained robust despite the economic downturn. Land Registry data shows that prices in the funds target locations have risen by 29% between Jan 2007 and July 2011 while prices in England & Wales have fallen by 5.7%.

The reason for this is that Prime Central & South West London suffers from a chronic demand and supply imbalance. The Mayor of London has a target of delivering 32,250 new homes per annum until 2021, however according to the Savills, completions stand at just over 18,000.

The shortage is further exacerbated by overseas demand. An estimated £2.7bn was invested in Prime Central London and £2.2bn in South West London in 2010 from international buyers.

Joe McTaggart, Managing Director at Walls & Futures said:

"Our strategy and expertise are already paying dividends. Having successfully closed the first round of fund raising in May, we have already started making investments which have resulted in an increase in the funds value. This is obviously good news for our investors, a great number of which are IFA’s themselves”

The fund is still open to new investors with a minimum investment of £5,000. Along with direct investment, the fund is available on Ascentric, Nucleus and Transact wrap platforms and has been accepted for investment by over 25 leading SIPP providers.

WHCM UK Residential Opportunities

White House Asset Management Ltd. have created the WHCM UK Residential Opportunities LP, a growth fund, which offers IFAs clients an opportunity to invest in UK based residential property either directly or through a pension. Through exposure to residential property, the fund aims to provide investors with the opportunity to create a balanced portfolio by investing in an actively managed asset backed investment.

White House Asset Management Ltd.’s competitive advantage is derived from its Directors considerable real estate experience, which covers development, acquisitions and disposals, property appraisal and active asset management of property nationally. Combined, the Directors have over 48 years of property experience and have been involved with property deals totalling £375m.

The WHCM UK Residential Opportunities LP fund seeks to acquire UK property through auction and a network of contacts at up to 40% discount to their open market value. The property portfolio will consist of c70% rental properties and c30% refurbishment opportunities and is designed to produce a target return of 12% pa over the 5 year term.

Mark Brooker, a Director at White House Asset Management Ltd. said:

"The timing of this fund is perfect, as property values remain low and rental demand is increasing. This is largely due to the fact that many mortgage providers continue to have stringent lending criteria and low liquidity. The UK recession continues to have a huge impact on property prices. There is an opportunity to acquire properties at favourable prices. Many buyers, developers and landlords are being forced to sell properties as "distressed sellers”, so there is an opportunity to purchase properties at up to 40% below market value.”

Black Katz London Residential Property Fund

Estate agency Black Katz has unveiled plans to raise £4.5m for a five year closed-ended property fund that will aim to buy undervalued properties in London.

The fund will refurbish the properties and then let them to professional tenants to try and generate high income levels, before selling them all in the latter part of the fifth year.

The London Residential Property fund will target net returns of 12 per cent for investors.

It will be administered by Gallium Fund Solutions and will target both high income on its properties and capital growth over the investment term.

It will adopt "moderate non-recourse gearing” of £6.5m on top of the client investments, taking the total targeted fund size to £11m.

The directors of Black Katz will be invested in the fund.

Director Andrew Black said:

"We have a proven track record in the London market of sourcing and refurbishing property for maximum rental income and capital growth.”

Quantum Residential Recovery Limited Partnership

The Quantum Residential Recovery Fund (the "Fund”) offers qualifying investors the opportunity of capitalising on current market conditions in the UK residential property market. The Fund Manager is targeting a net return to investors of 20% per annum which is reflective of the attractive property stock price available to the Fund. Due to this key factor whereby the Fund Manager is buying at a discount against today’s valuation rather than any historical reference, returns are not reliant upon unrealistic growth expectations in the market.

The Fund successfully reached its first closing target on the 31st March 2011 with £465k raised from private investors. A number of acquisitions are now underway and the Fund Manager expects to be able to show interim returns on a regular basis. No payment is to be made through dividends with all gains made from rent and capital returns being reinvested back into the Fund so as to expand the portfolio and ultimately increase the return on investment at the end of the Fund term.

Structured as a five year closed end fund the minimum capital commitment is set at £5,000 and the Fund is suitable for investment through Self-Invested Personal Pensions (SIPP) and Small Self Administered Schemes (SSAS).

Urban Share Opportunity Fund

The Urban Share Opportunity Fund offers a portfolio of student and young-professional accommodation in and around the City of London & Canary Wharf. To date, £1m has been raised out of the Urban Share Opportunity Fund’s £10m target.

The properties will be bought with cash and then geared at 50 per cent to maximise the profit made, said Urban Share.

This will be used to buy around 50 below market value properties in London’s zone one and two that will then be let to students and young professionals.

The fund will run for 10 years and will target an international rate of return of 11.33 per cent with the expectation of returning investors’ money plus 70 per cent over the term of the fund claimed Urban Share.

The fund has a minimum subscription of £25,000.

Urban Share believes that the UK residential market has shown lower volatility and higher growth than UK equities over the last five, 10 and 20 years.

Richard Klin, founder and director at Urban Share, claimed there is enormous demand for this sort of accommodation and the sector has continued to return consistent yields.

He said: "The fund provides hassle-free exposure to a London residential property market predicted to increase by 38 per cent by 2015.”

Unregulated Collective Investment Schemes (UCIS)

All of the UK Residential Property Funds mentioned in this article are structured as UCIS.

Every fund structured as a UCIS must have a firm authorised by the Financial Services Authority to act as its ‘operator’. This is because establishing, operating or winding up a collective investment scheme is a regulated activity and carrying out the activity without the proper permissions is a criminal offence.

The Financial Services and Markets Act 2000 makes it an offence to market an unregulated collective investment scheme to the public. Under FSA guidance, ‘marketing’ is given a very broad construction and it can mean any communication which might lead directly or indirectly to an investment. When looking at the meaning of ‘the public’ the following types of investor are excluded:

Investment Professionals; being:

    • Authorised persons
    • Exempt persons (not including Appointed Representatives but including professional firms)
    • Investors whose ordinary activity is investing in unregulated collective investment schemes
    • Governments, local authorities and international organisations
  • High Net Worth Companies and Unincorporated Associations
  • Sophisticated Investors with a certificate signed by an authorised firm (other than the scheme’s operator); and
  • Members of associations predominantly made up of exempt investors.

There is an additional set of rules which have been created by the FSA allowing a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

  • individuals for whom the scheme is assessed as "suitable” (usually by a financial adviser); and
  • individuals for whom an assessment of experience, expertise and knowledge is undertaken (usually by a financial adviser or the scheme’s operator) and the scheme deemed "appropriate”.

In these cases, the scheme can be promoted to a potential investor on the basis that they will not be allowed to invest unless they successfully complete the assessment (which may occur after the promotion has been made). In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person. In practice, this means that an unauthorised firm using an approved document can promote a scheme beyond certified investors, as long as the operator of the scheme (or another authorised firm, such as an IFA) will make assessments of potential investors and filter out any inappropriate applications).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading. Summary documents can be used, but these also have to meet the rules and must be consistent with all of the other information given to investors.


Bridging Finance as an investment asset class

Clara Capital investigates bridging finance funds as an alternative income strategy.

Following the sharp reduction in mortgage availability and traditional secured lending streams, the demand for short term loans has increased substantially over the past two years. Known as bridging finance, the aim is to ‘lend where the banks are not’.

A classic illustration is a typical auction purchase: the purchase is made and the deposit is paid, yet a bank is not able to lend the required funds within the 28 days needed to settle.

Bridging finance companies generally complete a deal within seven to ten days, enabling the borrower to complete the purchase and repay the loan as a result of refinancing or the sale of the property.

All very well, but the short-term nature of the bridge and the speed in which a decision is made makes them expensive loans. This is where the investment potential lies.

A number of funds have been established to offer investors a share of the interest gained on each loan. With target returns of up to 12% per annum, it is a concept certainly gaining traction.

High Returns

The Montello Income fund, offered by Montello Bridging Finance, has reported significant interest of late. Managing director, Christian Faes, said this is not surprising considering the ongoing problems in the lending market.

He said: "As time goes on people realise the high street lending market is not going to open up over night. We are a number of years into the crisis yet people are still taking many months to obtain loans. The longer that goes on, the more people look for ways to capitalise on it.”

For Faes, the ideal investor is someone sitting on cash, looking for a higher return than they are getting from their bank. The fund claims to provide investors with a fixed return of 8.5% per annum, payable quarterly in arrears.

Connaught Income Fund Series 2

Similarly, Connaught Asset Management offers the Connaught Income Fund Series 2 (Series 1 is now closed to new investment) alongside specialist partner and bridging finance provider, Tiuta. According to new funds director, James Allen, the vehicle is an ideal portfolio diversifier, with low correlation to traditional asset classes and offers a gross annual return of 7.5%.

UK Secured Finance Fund plc

The UK Secured Finance Fund plc, an Isle of Man OEIC, aims to deliver the respective target return for each share class through the creation of funding for short term commercial finance to the professional property community in the UK, where major banks may also participate in the loans provided by the Fund.

Loans to be used exclusively for property investment with typical borrowers being successful property investors and professionals with extensive net worth in addition to the projects being financed.

High level of security with a maximum loan to value of 70% supported by a current RICS valuation. Rigorous lending policy overseen by an Investment Adviser comprising of experienced bank and property professionals. The finance is aimed at the professional sector and does not expect to suffer any defaults. No Sub prime borrowers or owner occupied properties will be considered under any circumstances.

The available share classes are:-

Series One, 12% Targeted Return Share Class "Series One”

Series Two, 10% Targeted Return Share Class "Series Two”

Business Lending Secured Income Fund

The Business Lending Secured Income fund is designed to provide a 9.1% gross annual income fund by making short and medium term development loans to experienced property developers. They boast a top class management team with over 100 years experience in sector and a highly experienced compliance and regulatory board. The income return is distributed quarterly.

Bridgebank Firmus Flexible Income Fund

The Bridgebank Firmus Flexible Income Fund offers prospective investors the opportunity to invest indirectly into Bridging Loans, Short-term Loans, Short-term Commercial Mortgages and Short-term Second Charge Loans. Loans in the target sectors typically offer a premium rate of interest compared to long-term mortgage loan products.  The Fund aims to pay an attractive annual return of 7% over the London Inter-Bank Offered Rate ("LIBOR”) per annum.

We also understand that Bridgebank Capital is the specialist lending partner for the following funds:

Bluegate Secured Income Fund Series 1, which aims to pay investors a target return of 9% per annum.

Bluegate Secured Income Fund Series 2, which aims to pay investors a target return of 6% in year one, 7% in year two and 8% in year three onwards.

Sycamore V Property Development Fund

The Sycamore V Property Development Fund allows investors to invest indirectly into a range of projects within the UK comprising residential developments with planning permission already in place and land sites with an identified development potential.

PM Asset Management will create a portfolio of projects through the acquisition and development of a number of sites. All sites that are acquired by the Fund with planning permission in place, will be developed. Where sites are purchased without planning permission in place, planning permission will be sought for residential, commercial or leisure usage as appropriate. The site will then be sold or developed, with a view to sale after development, whichever, in the opinion of the Asset Manager, is in the best interests of the Fund.

The fund is a seven year closed ended fund with distributions in years 3, 5 and 7. The target return for the fund is 22.5% per annum.

Unregulated Collective Investment Schemes (UCIS)

All of the bridging finance funds mentioned in this article are structured as UCIS.

Every fund structured as a UCIS must have a firm authorised by the Financial Services Authority to act as its ‘operator’. This is because establishing, operating or winding up a collective investment scheme is a regulated activity and carrying out the activity without the proper permissions is a criminal offence.

The Financial Services and Markets Act 2000 makes it an offence to market an unregulated collective investment scheme to the public. Under FSA guidance, ‘marketing’ is given a very broad construction and it can mean any communication which might lead directly or indirectly to an investment. When looking at the meaning of ‘the public’ the following types of investor are excluded:

Investment Professionals; being:

    • Authorised persons
    • Exempt persons (not including Appointed Representatives but including professional firms)
    • Investors whose ordinary activity is investing in unregulated collective investment schemes
    • Governments, local authorities and international organisations
  • High Net Worth Companies and Unincorporated Associations
  • Sophisticated Investors with a certificate signed by an authorised firm (other than the scheme’s operator); and
  • Members of associations predominantly made up of exempt investors.

If the scheme invests wholly or predominantly in unlisted companies, authorised firms can promote it to High Net Worth Individuals and Sophisticated Investors who have self-certified. However, there is no such exception for unauthorised firms or for schemes that invest in other asset classes, such as real estate. Where the investor is certified, the promoter must ensure that the certificate is current and relevant before promoting the scheme to them. For Investment Professionals and High Net Worth Companies, the promotion can be made as long as it ‘may reasonably be regarded as being directed’ only at such investors and there are procedures in place to ensure that recipients not falling into these categories are prevented from investing.

There is an additional set of rules which have been created by the FSA allowing a scheme to be promoted to investors who have undergone an assessment by an authorised firm, including:

  • individuals for whom the scheme is assessed as "suitable” (usually by a financial adviser); and
  • individuals for whom an assessment of experience, expertise and knowledge is undertaken (usually by a financial adviser or the scheme’s operator) and the scheme deemed "appropriate”.

In these cases, the scheme can be promoted to a potential investor on the basis that they will not be allowed to invest unless they successfully complete the assessment (which may occur after the promotion has been made). In most cases, an FSA authorised firm can approve the scheme documents and summaries for distribution by an unauthorised person. In practice, this means that an unauthorised firm using an approved document can promote a scheme beyond certified investors, as long as the operator of the scheme (or another authorised firm, such as an IFA) will make assessments of potential investors and filter out any inappropriate applications).

Whichever exemption the investors fall into, the documents for the scheme must meet detailed requirements laid down by FSMA, the Treasury and the FSA. These include presenting a balance of risk and reward, carrying appropriate warnings, giving sufficient information, and always being clear, fair and not misleading. Summary documents can be used, but these also have to meet the rules and must be consistent with all of the other information given to investors.


New bridging loan directory goes live in UK

The first ever financial directory of its kind has been launched online in the UK to help bridging and commercial loan experts to find the best deal for their clients.

Online directory www.bridgingloandirectory.co.uk is aimed at IFAs, mortgage brokers and lenders that are serious about securing fast and effective solutions for short term finance.

The site offers a comprehensive list of key companies specialising in bridging loans and interim commercial finance for a multitude of purposes – from property development to buying a new house or paying an unexpected tax bill – so that intermediaries can select bespoke solutions for their customers.

Tony Sanchez, founder of the Bridging Loan Directory, part of the Clara Capital group, said:

"A mainstream bank may take some months to put together a loan for a borrower, whereas an experienced bridging finance company should be able to advance a loan within a couple of days.

"In the current climate, demand for bridging and commercial finance continues to grow and so the Bridging Loan Directory is keen to offer brokers and intermediaries access to some of the most trusted and reliable providers in the marketplace today.”

Well-known companies featured on the ‘yellow pages style’ directory website include London-based Borro whose introducer programme allows IFA’s, mortgage brokers, accountants, solicitors, lawyers, wealth managers & tax advisors to offer short term loans of £1,000 to £1,000,000.  All loans are non-status and secured against jewellery, luxury watches, gold, fine art, antiques, luxury cars, yachts, speedboats and other high value assets.

Approval in Principle (AIP) is provided in minutes and cash is advanced within 24 hours. There are no credit checks or extension, redemption, expiry or penalty fees for clients

Bridgebank Capital – one of the UK’s leading property finance lenders in the area of Bridging and Short Term property – is another directory entry, specialising in residential and commercial property transactions.

Laurence Goodman, MD at Bridgebank Capital, of Manchester, said:

"We provide property funding when it is needed the most and this can often be arranged in just seven working days.

"The Bridging Loan Directory is the who’s who of the finance world because it brings together the industry’s most notable companies in one place – making life easier for advisers and intermediaries.”

Mr Sanchez added:

"Bridgers and commercial financers are fulfilling a real need in today’s economic environment, where appetite to lend amongst the mainstream community is still low.

"While a bridging loan is advanced to a borrower in a much shorter time-frame than a traditional bank loan, most bridging finance companies will still carry out the same level of checks on the transaction as a bank, including obtaining an independent valuation on the property, and conducting due diligence on the borrower’s circumstances.

"Bridgingloandirectory.co.uk is a quick and simple tool to assist providers in finding the right financial products for their clients – with instant decisions and direct access to funds.”

You can visit the Bridging Loan Directory here


What makes a good Bridging Finance Fund?






By guest author Graf Promotions Limited.

All Bridging or Property Finance Funds are not the same. Below are a list of the features we believe are essential to help evaluate the strength of each proposition.

1) First Charges only
The first charge holder has all the control, a second charge holder has whatever is left over. A first charge holder controls the realisation of the security and acts to their own interest. This greatly exposes the top slice of the valuation and indeed interest and recovery costs may also increase the size of the loan secured by the first charge, to the detriment of the second charge holder.

2) No owner occupier loans/loans on family homes
Nobody would wish to see a family evicted and the courts may reject or defer an application rendering the security of little immediate value. The FSA regulates to ensure families are protected, therefore many lenders seek this regulation only to be able to take such security. Such protection is excellent for the borrower, not so for the provider of the finance, i.e. the Fund investors. Therefore, funds or investment advisers that can grant homeowner loans should be avoided.

3) Run by Banking Professionals with relevant experience
Not all with "banking” experience have actual decision making and loan underwriting experience. Granting loans is simple, however creating the process to do so and to ensure loan repayment is more complex and therefore it is essential that those creating and running the processes have the necessary experience.

4) Absolute maximum of 70% loan to value should be permitted
This gives the borrower a stake in the transaction, the fund a cushion against falling property values and the ability to achieve a forced sale quickly yet still clear the borrowing should the need arise. Avoid "averages”, limits should be absolute.

5) Short Term Loans should be just that, less than one year
The longer the term, the lower the liquidity, the less accurate the valuation and therefore the greater the risk. Extensions are inevitable but should be few and treated and evaluated as new loans. A clear assessment and understanding of the revised exit strategy remains paramount.

6) Loans should be repaid regularly
Short term loans need to be repaid, are these repayments in line with the number of loans granted. An established fund with 100 loans and an average term of 6 months should show approximately 50 loan redemptions per quarter, if it doesn’t, ask why not!
 
7) No misleading material
Literature should be clear, factual and meaningful without irrelevance’s that sound positive.

8) Regulatory requirements & Investor protection
Does the fund do the minimum it needs to or is it keen to have extra rules and checks in place clearly for the benefit of investors?

9) Good Corporate Governance and a majority of independent directors
Funds have a higher level of regulation than partnerships due to the essential requirement of an independent & regulated custodian. Funds should also be more transparent and as such it is easier to conduct meaningful Due Diligence.

10) No loans to connected parties
Is this prohibited and who is in place to check that it doesn’t occur ?


We believe the key to profitable bridging finance funds is that loans are well secured and genuinely short term in nature. In order to achieve an ongoing stable and sustainable return from funds which generate their profits from providing short term property finance it is essential that;

a)    the asset manager has a successful track record of decision making, underwriting in the short term lending sector and securing repayment;

b)    potential borrowers are experienced & wealthy property professionals with reputations to uphold and expertise to provide clear & reliable exit strategies rather than buy-to-let investors or members of the public,
   
 c)    acceptable security always on a first charge basis and never to exceed 70% LTV
        supported by an independent and current RICS valuation.


The UK Secured Finance Fund Plc (the "Fund”) has been established and structured to
comply with all these requirements.

For further information please contact the UK distributors:

www.gasfunds.co.uk


The points above are the views of Graf Promotions Limited, promoter to the Fund. For UK purposes, it is an Unregulated Collective Investment Scheme. This does not aim to be a complete description of bridging finance nor the Fund.

The Fund is a Qualifying Fund and complies with the requirements of the Isle of Man Collective Investment Schemes (Qualifying Fund) Regulations 2010 (the "Regulations”).

The Fund is only suitable for "Qualifying Investors” as defined in the Regulations. Shares are only available to persons whom Capital Fund Services Limited ("CFSL”), the Manager, considers to be Qualifying Investors. Investors into the Fund must sign a declaration to this effect which can be found on the application form. CFSL was incorporated in the Isle of Man with the number 123464 whose registered office is Capital House, Circular Road, Douglas, Isle of Man IM1 1AG and is licensed by the Isle of Man Financial Supervision Commission.

The value of any investment into the Fund can go down as well as up, neither investor’s capital, nor the returns are guaranteed, and that investors may not get back the original amount of their investment. Past performance is no guarantee of future returns.

This fact sheet has been prepared by the Promoter for IFA and Industry Professional use only . It does not represent an invitation to purchase shares in the Fund and investors will only be accepted on the basis of having confirmed on the application form that they have read and understood the Offering Document of the Fund dated 17th December 2010 which, in the event of any discrepancy shall prevail at all times over all other documents.

We're Hiring Self Employed Business Development Managers

Are you looking for an opportunity for financial  freedom?

Would you like to turn your already established relationships into an additional income stream?

Due to our ongoing success Clara Capital is currently seeking individuals who wish to advance their career with an ambitious company.

This is an excellent opportunity to introduce a highly desirable range of specialist investment funds to the wider IFA community, develop solid relationships with clients and would suit a dynamic individual who wishes to advance their career with an ambitious company where the more you produce the more you earn.

 Key Attributes

·         Previous experience with financial services products in the IFA marketplace

·         Existing relationships with IFA's & Wealth Managers

·         An excellent understanding of the niche fund industry and the property market

·         An excellent understanding of the pension industry

·         We celebrate high achievers and those producing in excess of £100K fee income

·         IFA marketplace knowledge

·         The ability to self-generate IFA appointments

·         Proven sales track record

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We offer in return

·         The opportunity to work with passionate industry professionals.

·         Back office support

·         PR and web-based generated leads

·         Realistic OTE £100K

For more information, or to send your CV, please email info@claracapital.co.uk

Michael Vaughan invests in Hotel des Deux Domaines

Now that he has retired from professional cricket, Michael Vaughan, the former England test captain who was ranked best batsman in the world after the 2002/3 Ashes series is concentrating on improving his skiing. He has even bought a mountain pied-à-terre in the Paradiski resort of Belle Plagne, one of Esprit Ski’s main chalet complexes in the French Alps - to enable him and his wife Nichola and their children Archie and Tallula to pursue his hobby.
 
"I skied at school, usually in Val d’Isère” he says, "’but I wasn’t allowed to ski during my cricket career. Now there’s nothing to stop me except a slight problem with my knee, but considering I don't have to worry about playing professional sport any more, a little bit of swelling doesn't cause me any concern ! I always knew that as soon as I finished playing cricket, I would be making skiing a regular holiday. I just love it - I think it’s the best holiday. I love the beaches, I love being in the sun, but there is something about a ski holiday that makes you feel very fresh.
 
"Nichola, my wife loves skiing too, but she’d never been since I started playing professional cricket. So a couple of years ago, we started to take the kids to France with Esprit. We had a great trip to Belle Plagne. It relaxes you, and you’re only relaxed because the kids are having a good time. And they obviously get well looked after, and come out of the Kids’ Club at half four smiling - sometimes crying - because they don’t want to leave. I didn’t ski that first year - it was before the team went to New Zealand, so I did a bit of training. There’s a gym up in the village. I did some hill climbing too. There’s a nice walk, if you go down to the bottom of La Plagne, and up into the forest. And I tried a bit of cross-country skiing too, but I hated that, so I stopped. It was too hard, too difficult! The following year, we went to the same spot, same hotel with Esprit, same time. I shouldn’t have skied, because although I wasn’t in the England team any longer, I was still playing cricket for Yorkshire. But I sampled it one afternoon just to see if I could still do it. Basically it was down to the bottom at Belle Plagne and up again. I was very slow and very careful
 
"You kind of know that at 34, 35, you’re going to call it a day, and there’s going to be plenty of time after that. Nearly all the cricketers and rugby players go as soon as they’re finished. There are a lot of people I know who’ve finished their professional careers - Austin Healey, Lawrence Dallaglio, Graham Gooch, Graham Thorpe – who every winter just go straight onto the slopes. "I was very patient. The year after, I wasn’t in the team, so I thought, sod it! I know now I’ve got the rest of my life to spend one or two weeks every winter on the slopes, and hopefully improve. We’ll be skiing again this coming February.
 
"I’ve been amazed how quickly I’ve picked up my old technique. I’m okay. I can get down. I probably need a few private lessons to get myself going again. But I won’t be silly and go down the mad runs!
 
"Now that we have a place in Belle Plagne, we’ll obviously be skiing regularly, and probably go out once in the summer as well. My kids are outdoor mad, so mountain- biking and whitewater rafting, walks, tree climbing – I’ll be into that. And my little daughter is a good tree climber.” At 6ft 2ins, Vaughan shouldn’t have a problem reaching the lower branches himself. He might even become the best skier in Belle Plagne, but possibly it’s too late for him to be Number One in the world.
 
Copyright 2010 Ski+Board

Details of this investment opportunity are available to view in our Current Opportunities

A Guide to Bridging Finance

By guest author Christian Faes, director, Montello Private Finance.

Bridging finance is a short-term loan that allows the borrower a period to time, before refinancing the loan. That is, it provides a ‘bridge’ for the borrower.


Importantly, a bridging loan is also advanced to the borrower in a short period of time. Where a mainstream bank may take some months to put together a loan for a borrower, an experienced bridging finance company should be able to advance a loan within a couple of days.


While a bridging loan is advanced to a borrower in a much shorter timeframe than a traditional bank loan, most bridging finance companies will still do as much due diligence on a transaction as a bank. This will include obtaining an independent valuation on the property, and conducting due diligence on the borrower’s circumstances. A bridging loan will also generally be secured by a mortgage/charge, in the same way as a loan from a bank.


Bridging finance is often referred to simply as a ‘short-term loan’; or as a ‘bridge loan’, a ‘swing loan’, or depending on the security and jurisdiction, a ‘caveat loan’. In the United States bridging loans are often referred to as ‘hard money’ loans. Bridging finance can also sometimes be referred to as ‘mezzanine finance’, although a bridging loan is usually not technically a mezzanine or subordinated loan.


As a short-term loan, bridging finance is usually for a period less than 12 months in duration.


There are various reasons why a borrower may require a real estate bridging loan, including:

      •to finance the purchase of a property purchased at auction;
 
      •to capitalise on an opportunity which requires a quick settlement (for example purchasing off a receiver);
 
      •to raise short-term capital against equity in a property;
 
      •to fund the refurbishment of a property.


There are also different types of bridging loans:


‘Closed bridge’: Refers to a bridging loan where there is a predefined and certain exit that the borrower has in place to repay the bridging loan, before the actual bridging loan is taken out by the borrower.


An example of a closed bridge, would be where the borrower has an offer of finance from a mainstream lender prior to obtaining the bridging finance. In such instances the borrower may still need the bridging loan in order to settle a transaction quickly or otherwise capitalise on a particular opportunity.


A closed bridge is often used to settle a property purchased at auction. In this situation the borrower may already have an offer of finance from a banking institution that the borrower has a relationship with. However the relevant bank may be unable to complete their internal bureaucratic processes and legal documentation in time for the borrower to settle the purchase. Therefore the borrower can use a bridging loan to settle the property transaction (usually required within 30 days of the auction), and avoid any penalties that may be incurred if the transaction is not settled on the settlement date. In many instances, the borrower also risks losing their deposit if the transaction is not completed on time.


Another common example of where a closed bridging loan is used, is where the borrower is selling the property that the loan is secured against. In such circumstances the borrower may already have a contract for the sale signed and exchanged with the buyer, but the borrower wants to draw down on the equity in the property prior to the sale completing.


‘Open bridge’: Refers to a bridging loan whether the borrower does not have a certain exit in place. Bridging finance lenders will usually require the borrower to have a detailed ‘exit strategy’ for repaying the loan. However, with an open bridging loan, the exit strategy is not certain.


An example of an open bridge, would be where the borrower is required to settle a transaction in a very short period of time, and has not had a chance to arrange mainstream funding for the refinance. In such instances the borrower may have a long-standing relationship with a bank that is very likely to advance the loan, but an application for such finance has not yet been submitted to the bank.


During the ‘credit crisis’ the distinction between a closed bridge and an open bridge loan has been significantly blurred. This is because the certainty in which mainstream bank lenders are providing finance is often uncertain - even in situations where a borrower is particularly credit-worthy, or the asset involved presents a very solid lending case. As a result, a loan which may appear to be a closed bridge, but in fact it is in reality an open bridge loan.


The costs involved with obtaining a bridging loan will often depend on the borrower’s circumstances.


In the UK, typically interest rates will typically be around 1.5% per month. Some bridging companies will offer interest rates less than this, but these loans usually end up being as cumbersome and time-consuming as a bank loan, and will often have similar documentation requirements and Loan to Valuation constraints.


In addition to the interest rate, the borrower will usually be required to pay:
 
      1. An Establishment Fee of between 1-2%.
 
      2. The costs to obtain an independent valuation on the security property.

      3. The legal fees to prepare the loan documentation.


Most bridging financiers will allow for the costs associated with the loan, including the interest for the term of the loan, to be deducted from the loan advance. This mains that the bridging lender will effectively ‘roll up’ these costs as part of the loan so that the borrower is not actually required to pay these costs until the loan is repaid.


Other terms often used in relation to bridging finance:


‘First charge’: Refers to the ranking of the security for the bridging loan. A ‘first charge’ loan refers to the loan being secured by a first mortgage/charge against the security property. A first charge lender holds the senior security position in a loan.


‘Second charge’: Refers to the ranking of security for the bridging loan. A ‘second charge’ loan refers to the loan being secured by a mortgage/charge that ranks behind the first charge lender. That is, the security provided to the lender ranks second. A second charge loan will generally have a higher interest rate payable to the lender than a first charge loan (given that there is more risk associated with the loan for the lender, as it holds a subordinated position).


‘Mezzanine finance’: Is sometimes used as an interchangeable term with bridging finance. However, technically a mezzanine loan in bridging finance terms, refers to a second charge loan. That is, the borrower has a mezzanine (or subordinated) security to the first charge lender.

Christian Faes
Montello Private Finance


Property Investments in Emerging Markets

By guest author Paul Ibbotson, Director, Emerging Market property

‘Emerging Markets’ is something of a buzz phrase in the alternative investment world at the moment. Investors and their advisers seeking the potential for higher returns to balance lower yielding mainstream investments have been drawn in recent months to consider investment in the world’s emerging economies.

But for the investor seeking such investment opportunities, two key questions arise:

•    How do I access emerging markets; and

•    Which emerging market should I choose?


How to gain access to emerging economies

Almost by definition, capital markets in emerging economies are relatively unsophisticated, often small and illiquid and in some cases vulnerable to market abuses because of inadequate regulatory regimes. Many equity capital markets in emerging economies have seen extreme volatility and some restrict direct access to listed stocks by foreigners.

Direct private equity investment is often extremely difficult to achieve without detailed knowledge of the jurisdiction involved and the barriers to entry in terms of the cost of due diligence can be formidable.

Historically, investors seeking access to emerging markets have concentrated on property. Direct property ownership, especially of second homes, has been a popular investment choice, especially as in many cases the investment is also a ‘lifestyle purchase’ enabling the investor to have the use of his or her investment for holidays for themselves, family and friends. But even direct property ownership is not without its problems.

Investors have to make often costly arrangements for maintenance of their asset and for lettings where rental income is sought. If an investor is seeking to build their own property then – while returns can be enhanced – the development process can be difficult to manage, especially from overseas, and the planning and legal regimes in some emerging markets can present pitfalls for even the most sophisticated property investor. Some classes of investor (UK investors investing via their SIPPs, for example) are also restricted by HMRC rules from using their investment property personally.

The alternative UCIS market has seen a number of funds that aim to invest in property development in emerging economies. These funds can offer a good alternative to direct investment in assets and, provided the developer and fund manager are experienced and professional, can insulate the investor to some extent from the challenges and problems of direct property ownership. Sometimes, such funds are little more than widely dispersed project financings: their purpose is to develop a single asset and liquidate it. Other funds have a greater range of underlying assets, offering a degree of risk management through diversity.

Typically, such property funds have tended to be closed-ended, restricting both liquidity and exit options for initial investors and also the opportunity for investors to come in at a later stage when the fund and the developer have established a track record.

Recently, some asset managers and developers have begun to offer products to the alternatives/UCIS market that try to address some of these structural concerns. We are seeing funds launched which are open-ended, with liquidity facilities underpinning redemption rights for investors. Yields in emerging markets ought generally to be sufficient to absorb part of the fund’s assets being held in cash or liquid instruments to allow reasonably free trading in and out of the fund, without diluting overall returns too greatly. Of course, it is not possible to overcome completely the inherent illiquidity of property investment and only investors who understand such risks should consider making emerging market property investment part of their portfolio.

Investment in development projects, as opposed to mature property assets, carries its own benefits and risks. By its nature, property development creates value for the investor during the development life-cycle through planning gain and profit in the construction phase. An investor in mature, income producing property assets, on the other hand, is more directly exposed to the vagaries of the market for his or her return. As many investors have found to their cost, investment in mature assets and reliance on factors such as yield compression for capital growth can be a risky approach.
But property development does carry its own inherent risks. Essentially dependent for its profit on a small difference between two large numbers – the cost to acquire and develop and the income from realisation through sales or other disposal – the stresses on the expertise of the developer are considerable.

This makes it extremely important for an investor contemplating investment in property development to be confident in the developer and asset manager responsible for the developments. Potential investors should look for track record in the market concerned (not just a track record in ‘property development’) and, in particular, a track record which can demonstrate expertise at all stages of the market cycle. A developer who has managed assets and preserved value in a cyclical downturn is much rarer and more valuable than a developer that has only shown an ability to make hay while the sun shines.


Which emerging economy?

There has been a great deal of analysis in recent years of the potential of various emerging market economies. Famously, Goldman Sachs identified the BRICs (Brazil, Russia, India and China) as the harbingers of emerging market growth and has since coined the "N-11” (Next Eleven) group of emerging economies which it regards as having great potential over the next few decades. Much of the discussion has been based on macro-economic and demographic analysis and takes a long term view of developing economies, and is none the worse for that approach.

There are also, however, a number of emerging market economies where more near term factors offer the potential for growth within the typical private investor’s time-horizon. One example of this has been the European Union Accession Countries that have joined the EU in recent years. Investors who invested wisely in emerging markets such as Poland and the Czech Republic have seen good returns driven largely by movement of those economies towards Western European standards of economic management, legal systems and fiscal and monetary policies. There have, of course, been recent problems in such economies (as with much of ‘Old Europe’) caused by over-supply of credit and asset price inflation and subsequent correction. But the fundamentals of emerging economies joining a larger group of more developed nations and being subject to the disciplines that that entails are still worth consideration by those contemplating an investment in emerging economies.
A good example of a developing economy submitting itself to the disciplines of a broader group of nations is Croatia. Having missed out on the last two waves of EU accession because of disputes concerning national borders and human rights resulting from the break-up of the Yugoslav Republic (now resolved), Croatia is due to join the EU in the next two years. The process of accession to the EU has led to a complete change in many of the country’s economic, commercial and legal systems in order to comply with the the EU body of laws known as the ‘Acquis Communautaire’.

Croatia, like its neighbour Slovenia, seems to be culturally and historically more aligned with the nations of Western Europe than other Balkan nations and investors in the country are well supported by a network of international banks, law and accountancy firms and other professional service providers.

Like many emerging economies, historic growth trends in Croatia have been very positive, but the key to successful investment is in discrimination and careful selection of assets within the particular market. Typically, an emerging market will experience a first wave of investment capital which will concentrate on the most needed development, often driven by political considerations. Often, follow-up investment is lacking.

In Croatia, for example, there has been public sector investment in motorways, but little follow-up investment in logistics/distribution assets to support the basic transport infrastructure. Similarly, a lot of private sector capital has been invested in office, commercial and residential assets in the capital, Zagreb, leaving the regional centres such as Split and Rijeka undersupplied with development.

Which brings us back to the key question for investors considering investing in property in an emerging economy: does the developer with whom you are partnering understand the detail of the country you are looking to invest in and have the experience to identify the assets and markets most likely to offer decent returns?


Paul Ibbotson
Emerging Market Property
October 2010
http://www.emergingmarketproperty.co.uk



Renewable Energy Funds

By guest author, James Sullivan, Director, Pilinvests.

With oil stocks dwindling, there is a growing awareness of the need to shift towards renewable energy sources – a necessary transition that has been brought to the forefront of the public’s minds by the recent tragedy off the Gulf of Mexico. Certainly, the reliance on coal and oil is unable to continue indefinitely, placing a growing importance on the renewable energy industry and presenting an exciting investment opportunity, especially as total energy needs will no doubt continue to rise even in the face of falling fossil fuel availability. Consumer and government pressure on energy producers for renewable energy sources means that the shift has already started and there’s no doubt that the part that renewable energy plays in the UK will continue to grow and, with it, so will the commercial opportunities available in the industry.


At present, renewable energy makes up only a very small percentage of total UK energy production. According to the National Audit Office (NAO) data for 2008 (the most recent available data) showed that only 2.3% of the UK’s energy came from renewable sources, making it almost certain that the Labour government’s goal of 10% by the end of 2010 will fail. As this was merely a domestic goal, the only consequence is political and the party responsible for this overly high goal setting and under-achieving has duly been voted out. However, the government does have a legally-binding obligation to increase renewable energy production as a proportion of total energy production to 15% by 2020 under the EU Renewable Energy Directive 2009. Assuming this is indeed achieved, we will witness a seven-fold increase in the amount of renewable energy produced. In absolute terms, the increases will be even greater as total energy needs will, no doubt, continue to grow and the increase to a proportion of 15% represents a larger slice from a larger pie. There is no pretence that the shift towards renewable energy will stop there – the government, along with consumer lobby groups, no doubt has even higher long-term goals in mind. Not only will we see a change in the size of the renewable energy sector but we will also see a change in its composition, namely an increase in the proportion of renewable energy produced by wind. The UK has recently achieved the milestone of successfully installing one gigawatt (GW) of offshore wind farms – enough to power 700,000 homes – and this is set to increase hugely with another 40GW in various stages of planning.


This shift in energy production from traditional methods such as oil and gas towards renewable sources provides a massive investment opportunity into an industry that is effectively guaranteed to grow in the near future. Even if the UK does not completely fulfil its obligations and falls slightly short of the 15% renewable energy goal by 2020, one can be sure that the UK will attempt to do so – rather than face the repercussions of the EU. However, even though the industry is guaranteed to grow hugely, investment is not without risk. As developers continually propose new technologies to meet this need for renewable energy, it is certain that some of these will boom while others bust. The industry is highly volatile as new ideas are being developed for previously untested markets. This gives investors a huge opportunity to capitalise on the inevitable shift in energy production.


It is unlikely that investors will be overly willing to invest completely in any one single technology except for, perhaps, wind as such huge growth is expected in the number of wind farms in the near future as energy from wind goes from 1GW to 40GW. It is more likely that a significant proportion of investors will be looking to spread their investment over several ventures investing in a number of different renewable energy technologies rather than focussing on any single one in particular. Collective investment schemes are an effective way to spread the risk over these different investment opportunities.


For there to be a profit opportunity, investors need to be persuaded into investing in renewable energy in the first place which, although the industry does present the possibility of high returns, there are also high levels of risk involved. Often, the firms developing new technology in the renewable energy industry will be small and, for those successful companies, the high growth may follow a period of dormancy as the project is analysed and tested to see whether or not it is indeed viable on a large scale. Because of this, funds in these areas may only be suitable for those who have a long time horizon and are willing to tolerate a high degree of risk. For investors whose fund managers do successfully direct funds into projects that take-off, the bearing of this high risk should be rewarded with commensurately high returns.


The government appreciates the potential reluctance investors may have due to the risky nature of such investments and realise the need to entice investors into renewable energy and away from fossil fuels through a combination of investment incentives and tax penalties. A recent example of this is the introduction of feed in tariffs (FiT) which provide financial incentives to those generating at least some of the own electricity using renewable sources. The government estimates that a typical household could earn up to £960 annually through using solar panels and, under the scheme, households and businesses have the choice to either use the electricity they produce or feed it back to the national grid. The introduction of the FiT has indeed had a very real impact as evidenced by power company npower reporting an 80% increase in solar panel inquiries for the month following the introduction of the tariff on April 1st this year. Buoyed by the success of the FiT, it is likely that the government will soon introduce additional incentives to further entice households and firms alike to use renewable energy. A huge boom in the industry in the near future is a very real possibility.



Opportunities exist for managers looking to launch funds to invest in renewable energy now. The rapid growth that is likely to be seen in the renewable energy sector will mean that even already established fund managers are going to be entering into unexplored territory – as never before seen technologies are continually developed – meaning new investment managers should not face a significant disadvantage relative to these firms. Fund managers who develop a sound reputation for fund management with regards to renewable energy will have a significant advantage over others, an advantage which could become larger and larger as renewable energy becomes increasingly important – there has already been talk about increasing the EU’s goal of 20% renewable energy subject to other major non-EU countries, such as the US, agreeing to similarly challenging goals. Thus a head start today could result in long term benefits. In the current climate, with firms in heated competition to pick up new investors as the economy returns slowly to what it was pre-financial crisis, letting this one slip would be a huge mistake.

James Sullivan, Director, Pilinvests

www.pilinvests.com



Alternative Investments and Real SIPPs

Alternative Investments and Real SIPPs by guest blogger TonyHales of Stadia Trustees.

While many Investment Advisers are preparing for RDR and trying to keep up with all the new developments in technology, more and more are being approached by SIPP clients wanting advice on alternative investments instead of just traditional fixed interest and equity investments. The advice being sought is ranging from private equity and hedge funds to overseas holiday resort property and revenues from oil wells.

It is sometimes tempting to try and steer these SIPP  into the comfort zone of insurance company funds, unit trusts and OEICs, on a well established funds platform for ease of administration, but is this really in the clients’ best interests? Especially as many investors feel let down and disappointed not just with these collectives but also with many other traditionally ‘safe’ investments such as shares in banks.

All SIPP clients should know that in order to get a higher return a higher risk must be taken but Investment Advisers with a working knowledge of the Efficient Frontier theory have a distinct advantage over other advisers and can respond to their SIPP clients with a much more professional approach. These Advisers are able to explain that by adding alternative investments to a traditional fixed interestand equity portfolio that total returns can often be improved without too much additional or increased exposure to risk.

This knowledge is appreciated by clients who, in many cases, often have some personal knowledge or a keen interest in the alternative investment they would like to be purchased by their SIPP e.g. carbon credits or an overseas resort. Also advising on investments outside those of the large insurance companies or fund supermarkets is becoming far less of a problem for those Investment Advisers who now have already changed their business model, or who are currently moving across to, Adviser Charging, in the spirit of RDR, rather than waiting for the FSA’s 2012 deadline.

The range of alternative investments coming to market is rising and there are now plenty of choices for all SIPP investors looking for other options to fixed interest and traditional equities in order to further diversify their portfolios and help manage risk with both good asset allocation and in line with the Efficient Frontier theory.

In addition to private equity funds, hedge funds and funds of hedge funds which give SIPP investors access to areas previously the domain of the very wealthy, there are many other alternative investments of interest. These include beaches, carbon credits, carbon offsetting, climate solutions, currency funds, farmland, football funds, managed futures, overseas property resorts, property recovery and bridging finance funds, residential property funds, student accommodation funds, traded endowment funds, trees in tropical forests, waste treatment and many eco andgreen and other specialised investments, all of which are suitable for SIPPs. Alternative investments are also brining more people back to saving for their retirement in an enjoyable and interesting way. Oil revenue income from a ‘nodding donkey’ not only provides a good return for a SIPP investment but also makes for interesting conversation at supper parties which encourages more people to save for their retirement using SIPPs and that has to be good!

A SIPP is also an ideal vehicle in which to hold alternative investments alongside traditional fixed interest and equities. Remuneration for advice can be paid to the Adviser direct on an Adviser Charging basis from the SIPP itself. However, Investment Advisers do need to work with a SIPP provider which accepts all HMRC permitted investments in order to offer this true "whole of market” advice.

It is also important for Investment Advisers to find out whether the ‘real’ SIPP provider has the in-house technical knowledge and experience to help them and to find out exactly what that experience is and at what level it is e.g. level 6 with 25 years experience. This is particularly important when advising on the suitability of some alternative investments such as unlisted securities in private companies. A suitably qualified and experienced ‘real’ SIPP operator should not only be there just to accept all HMRC permitted investments but also to help the Investment Adviser with technical support and guidance on the suitability of investments a for SIPP in general.

Once you have found a good ‘real’ SIPP provider, with access to a director or senior member of staff who can give you this ongoing and in depth-technical support, build up a good working relationship with that person, as they are few and far between, and then watch your own business grow as you widen both the parameters and scope of your existing advice as well as becoming more specialised and able to operate at a higher level than your competitors. So get ‘real’ and be more successful!

Tony Hales

Stadia Trustees Limited


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