Sometimes investors never learn - after the implosion of the Brandeaux funds the funders are at it again, pushing the same illiquid funds to the same set of the investors , just under the new brand name of Coral Student Portfolio. The fund performance looks impressive with one way up - where did we see that before. Its claimed to be liquid with 4% cash and 96% in property that only goes up and of course is leveraged in a manageable way (heard that one before anyone? Anywhere ?). But the reality is that it is the same deal wrapped in a new brand.
And there is Gavin Furber Smith, the man who started with leveraged portfolio bonds with Towry Law - they went bankrupt under investigation with the HK Securities Commission. After a very brief stint at private bank he starts flogging private equity and the accusations of miss-selling are rife surrounding him. So the brokers in Asia won't touch him barge pole, he is not welcome in the UAE and we are reliably informed will likely be arrested on entry - so he is Director of the latest sham in Europe.
So how appropriate John Kennedy, a founder of Brandeaux, would create his second fund series with same scam under a new name, surrounded by such glowing talent. Does anyone do any due diligence these days?
Investors be aware - only the first investors out this fund will make a return, once the liquidity is gone they are forced sellers of assets at values that might be a bit different then indicated in the fund performance sheets. And hey bingo - Brandeaux 2.
Did you see the charges!!!
1.5% annual management, then to start off with 5% redemption penalty. It means Coral take 5% out of whatever you put in and then when you redeem they take it back - so you pay it either way. See their notes on redemption penalties!
Plus your IFA can wrap it in a portfolio bond. This means the broker can take another 7-10% depending on their terms with the bond provider - and you pay for it in a redemption penalty if you try to come out; and on top there is an annual management charge that is probably 1.5%-2.0% on the bond. This is how the IFA's get paid.
Now to enhance the returns.
Mr Furber Smith's added value - you can borrow money to put into the fund. Apparently it is so safe you can borrow money from a bank to put in the fund using the fund as the collateral. Of course in a bond wrapper for added protection.
So now imagine you invest 100 and borrow 200 - an LTV of 66%. Interest rates are cheap now but will go up. You invest the whole lot via a portfolio bond with John Kennedy (founder of Brandeaux. - look it up - stella fund that was). Coral gets commission of 15 (5% on 300), the Bond guys take let's say 24 (using 8% on 300) and you are paying an annual management fee of 1.5% plus 1.5% = 3.0% (yep, you got it, on 300). So for your equity investment of 100 you just paid 39 commission - yes that's it - now you understand - 39% commission relative to your investment.
We knew Gavin from his days in Hong Kong and much of this leverage was done in Geneva or Jersey.
The HK Securities and Futures Commission gave a warning over many Towry Law people in Hong Kong. This was a good firm that was bought down by greed of just a few senior sales people. Knowing the details of those investigations I can confirm Gavin Furber Smith was under scrutiny with quite a few others. There was never a formal blacklisting but most of them were made it been known they were not welcome in the territory.
Some were even apologetic for what they did.
Mr. Furber Smith claims that he has proven record with HNW investors? Proven record of losing them money. None of those HNW investors in the past 15 years is happy with his work.
Family offices is a joke, him being a calibre to have family office client, and institutional investors please-seems that people can just make up their CV's today!
You cannot have a liquid fund investing in an illiquid asset class. The insurance companies that write the bond wrappers which just facilitate double commissions know this from history time and time again.
Take Mansion Fund, 2PSI you should add that it the title, it blew up in 2013. It was another student accommodation fund, just like brandeaux. They had 10% cash in a STG282Mn fund, but it got exhausted by the first investors out of this fund. Then there was no cash and they could not realise assets fast enough so it got suspended. Nobody can then get out. Would you believe they tried to borrow to pay back investors. That only helps the next batch of redemptions but leaves the last investors now in a debt burdened fund in an impossible position. The disaster is then inevitable.
Coral keeps in cash just 4% according to its latest performance sheets. Disaster waiting to happen!!!
I write for an online news wire in South Africa. Gavin Furber wanted to get me to write an piece on a issue referencing one of the other blogs here. I could not write the story he wanted. He offered Rand 5,000 so I discontinued all contact with him. He is very arrogant and rude when he does not get his way. This is not ethical and insulting to me. Everyone should know about him.
Geneva you miss a key risk already. The coral student portfolio is already leveraged. The fund is already high risk because of its internal debt. There should be health stickers all over it. It is suicidal to have an investor borrow to invest in this fund. This is debt on debt. I doubt banks would actually do it.
Ronete this is no surprise. When Gavin was doing business with our brokerage he paid consultants directly behind our backs to do business with him. We met Gavin many times and his story eventually wears out; he oversold to our clients and we paid a price. He will never step in our offices again and I know of quite a few others who feel the same. We really don't like him at all and he tarnishes our industry which has too many problems already.
LC, I agree with you, you are correct. The risk of these funds are extreme and the share price is a work of fiction. Have you seen it!
The share price of Coral is the first flag that there is a problem. When Brandeaux failed a large amount of this asset class came to market, yet the Coral share price did not dip at all. This makes no sense as simple economics say when supply goes up the price comes down. A share price that defies gravity equals an accident to happen.
There are several articles on the charges of Coral but none that explain it as 39%. This is news. I would be interested to write that piece. Will try to send you a private message through here.
So now imagine you invest 100 and borrow 200 - an LTV of 66%. Interest rates are cheap now but will go up. You invest the whole lot via a portfolio bond with John Kennedy (founder of Brandeaux - look it up - stella fund that was). Coral gets commission of 15 (5% on 300), the Bond guys take let's say 24 (using 8% on 300) and you are paying an annual management fee of 1.5% plus 1.5% = 3.0% (yep, you got it, on 300). So for your equity investment of 100 you just paid 39 commission - yes that's it - now you understand - 39% commission relative to your investment.
Coral have been pushing this student fund all over Dubai for a while. We told all our investors not to touch it as we think it will blow up as soon as the UK market pulls back. It did happen with similar funds and we don't see any difference here. We see Mondial were pushing it hard to some of our investors. It is not regulated in Dubai. Go Careful.
Ronete you are not only one he asked on our former colleagues similar. Furber was always flirting with our staffs and we hate his racist jokes it is too embarrassing for us, he is not a good person.
The problem is people like Gavin Furber Smith are high pressure sales and will just tell the client anything as was proven here. This is called mis-selling. This is so dangerous for IFA's these days. It used to be Asia where these people hung out but the regulators did a good job of cleaning most of them out having seen so many funds go wrong over the years.
Listen I met him at the waterfront with a gf. He had gone out with her a few times and was just 'kak' as we say down here. She split with him quick.
I agree Gavin does have a mixed reputation here.
One of our investors told us that Nicholas Porter (Coral owner) knows Gavin from Dubai. They lived on the same estate and their kids went to school together.
In hong kong is gweilo or white devil. He disrespect so many women with his attitude. We sorry for her wife.
I agree; fully deserving of our sympathy. Let's also remember the investors to whom he flogged the Porton rubbish with such great enthusiasm, probably matched in that only by Fraser Jamieson (ex Magellan).
Furber Smith probably pitched his knowledge of the Dubai IFA's to Porter as he was here for about 5 years. Before that he was in Hong Kong and covering Asia, but I don't think he left Asia on good terms. He does not have the personality or experience to deal with institutional investors and he never did that.
Bud, actually I don't think Fraser is a bad broker, we know him and we know some of his investors and they have generally only good things to say about him. I think he has come under a vicious attack by a few. He perhaps was guilty of getting oversold to by the likes of Gavin and other fund reps and perhaps should have questions what he heard.
Brokers have to get better at understanding the risks as well as the potential. This is one reason some reps will never step in our office again as they tell an upside only story.
Furber Smith sounds charming, a disgrace to his profession. Are you sure he didn't work for deVere?
If I may I'd like to correct some misconceptions here.
Firstly, Coral is quite unlike Brandeaux and Mansion in that it doesn't actually own bricks and mortar, instead it owns shares and other instruments in companies who own properties. This puts a very different slant on the liquidity issue, as they showed not too long ago when Mansion and Brandeaux (2nd time) went into suspension and the SA sector overall lost favour. Coral met tens of millions in redemptions without a problem.
Geneva, to say Coral take 5% initial and then 5% on redemption is incorrect. They, like quite a few funds, have redemption penalties in the first five years with 5% payable in the first year declining by 1% each year until the sixth when it is nil. There is no Initial charge. If you for example needed to redeem in the fourth year the penalty would be 2% however you would have had growth of 6 - 8% for each of those years to ease the pain.
As for leverage my understanding is that they do not use it.
2PSI, you imply that Brandeaux investors lost their money. In fact it took a long time, but they were repaid. I expect the same will happen with Mansion, in time.
Roadking, these funds work by paying the commission on the front end. This means when you invest $100, $5 is paid away to the broker and then $95 is put to use in the investment. In their Accounts they capitalize the commission ($5) and write it off it over 5 years. You pay the redemption fee to make sure if you redeem before 5 years their books balance. But the fact is that they pay the $5 of 5% in commission to the broker or they are keeping it themselves.
However when you invest via a portfolio bond (a wrapper, say form RSA, or Generali for example) they also pay a commission on the sale of the bond wrapper. This can be 7-10% typically. So it is a matter of fact that you will have then paid two commissions.
The fund is what is called a feeder fund into underlying assets. If you research Nicholas Portor you will find that he owns most of the underlying assets. This means he owns the bricks and mortar as you put it. This is just a mechanism of using other peoples money to buy or help finance his assets on the cheap. When you buy a hose you take a loan from the bank and then put in your own equity position. You might have a loan to value of often 90%. But the cash portion is the risky part, if the value of your house falls by 15% you are in negative equity. This same is true for a building, in this case his student accommodation. The difference is that he is not using his cash for the 10% equity part, using my example, he is using the Coral Student Portfolio investors money. Then you get to a question of further charges, for example he manages the bricks an mortar but what does he charge to manage that building. Is there another fee that the investor does not know about.
Like any good Ponzi scheme you have to pay out now and then, this is met from the funds of funds part and not the sale of his underlying assets, which in some cases are held in other funds (read charges on charges). He has currently 4% liquidity. Now if the property market corrects lots of investors want out together and then it is the last man standing that loses his shirt.
Hope this explains how the fund is working.
Any time you see a purported investment performance that is a diagonal line trending upwards with little or no variation over several months, it's a Ponzi scheme. There is no doubt - literally zero - that the Coral Student Fund is a Ponzi scheme. It's remarkable and very sad that investors keep falling for these scams despite them being the easiest frauds to detect and that financial intermediaries keep pushing them. The victims are stupid (because they are unwilling or incapable of learning from the past) and the intermediaries are either incompetent or are simply prepared to peddle anything for a commission.
David I completely agree with you. Simply put if it looks like a dog then it is most likely a dog, as the saying goes.
I have seen in the last weeks Coral representatives in the market messaging that they are not a Ponzi scheme but the facts are the facts and as far as I can see they don't have convincing arguments to explain away the facts.
If only investors could be better informed.
There is absolutely no doubt this is a classic Ponzi scheme. There is the share price that only goes up despite macro economic data and then there are the huge commissions. Over the last 20 years we have seen this time again. The IFA's need to get better at serving their clients rather than their own pocket. These commissions are the ultimate conflict of interest.