Eddie Hobbs new Brendan Investments vehicle

[Rico]

All Sounds a little complex,I thought I heard the great man ,(about tracker funds), if you can't understand them, dont invest. I know a guy who set up a few german funds and he and his buddies has made well into seven figures from management charges, then again the investors did well too but not quite as proportional well for the risk taken.

 

[gonk]

If it's typical for this kind of fund, I think any investor would have to ask why they would pay anyone 4% p.a. to invest their money.

I'm not trying to justify it, I'm just saying Brendan Investment's annual management fees are in line with other similar funds, albeit at the top end of the range. If you think this is too high, well OK, maybe this type of investment isn't for you.

What I do think is preposterous is the performance bonus. The take is 20% of any gains above a compound rate of 8% p.a.

To give an example of how undemanding a target this is, there is plenty of commercial property available in Germany at rental yields of 8% to 9%. Buy €200m worth yielding 8%, giving a gross return of €16m. Borrow €150m at a ten year fixed rate of 5.6% (EBS's current 10 year rate for buy-to-let). Interest costs are €8.4m p.a. Net yield after interest is €7.6m, or €76m over ten years - equal to about 9.75% CAR on the €50m subscribed by investors without any capital growth in the property values at all.

Now I know this is a bit simplistic and doesn't take account of tax or transaction costs and assumes there are no defaults on leases, etc, but you get the idea.

 

[Oran Man]

Trying to research other geared property funds on Google at the moment so as to have a good yardstick to measure against Brendan. I was expecting virtually all the major firms to have something of this type on their books but I'm finding very few. Any hints on how best to narrow my search?

 

[LDFerguson]

The highest-profile competitor would probably be the [broken link removed] - the leaflet I've linked to gives you an idea about the investments but not the charges, as the fund is available through a range of Hibernian lump sum investment and pension products so charges will vary depending on the product and the commission terms arranged by the intermediary.

Another comparable investment vehicle would be the [broken link removed] offerings. If you do a search here on Askaboutmoney, the Augusta investments have been discussed here before.

P.S. - Thanks for clarifying about your lack of vested interest.

 

[czechmate]

I'm not trying to justify it, I'm just saying Brendan Investment's annual management fees are in line with other similar funds,

Fair enough, but would you agree that a 4% p.a. fee for the return profile on offer here is an enormous fee to pay. I fully agree with your comments that the performance bonus is heavily weighted in favour of the directors (Eddie&pals) but I wonder why your comments do not also extend to the annual fee. My comments on fees are only in the context of the value being given for the fee being charged - I put no stock in the fact that 'that's what everyone else is charging'. That is a useless measure in my mind. If everyone is charging what I believe to be an extortionate amount of fees then my read is that it's a fat goose ready to explode.

 

[Bronte]

Gonk I bow to your superior knowledge when you said :

But availing of the loan facility to invest in this fund would be like borrowing to invest in a company which in turn was going to borrow to invest in Eircom and which would not be able to sell its Eircom shares for ten years.

Not really a very useful comparison . . .

End quote
Anyway this investment is too complicated for me and I think the people who run it getting 4% of which 3% is on borrowed money is really high not amind that they would get a bonus if they achieved over 8% which is way low when you consider the risks.
On another point I don't understand why everybody dislikes Mr. Hobbs, he's just peddling his particular product for his own benefit naturally, people don't have to invest in this if they don't want to? It's not a rip off, you read the small print and you choose to partake in the gamble or not - for that is what it is.

 

[gonk]

Fair enough, but would you agree that a 4% p.a. fee for the return profile on offer here is an enormous fee to pay.

No. This has been discussed several times here on AAM and I have always made the point that the high fees as a proportion of investor's funds are a function of the fact that the fund is geared, as opposed to exceptionally high charges by the fund managers.

To turn your argument on its head, there are plenty of ungeared property investment funds out there. If one accepts your point, these are unjustified in charging more than 0.25% of the value of property under management as an annual fee. The effort and responsibilty involved is the same, whether or not the investment is geared. I can assure you there are no such funds with fees this low.

On another point I don't understand why everybody dislikes Mr. Hobbs, he's just peddling his particular product for his own benefit naturally, people don't have to invest in this if they don't want to? It's not a rip off, you read the small print and you choose to partake in the gamble or not - for that is what it is.

On the contrary, it is a rip off. Compare Brendan Investments' fees with Friends First's Insight Property IV fund. This is a geared fund investing in UK commercial property. The Friends First fund has been running for just under 2 1/2 years and is intended to have an approximately five year term. So far, it's showing a gain after fees of 81.4% - about 27% compounded annually. If Brendan Investments do as well they will be patting themselves soundly on the back. The Friends First fees are 0.75% p.a. of the value of assets under management and a final performance fee of 10% of gains over 10% p.a. - Brendan Investments will charge 1.00% p.a. of the value of assets under management and a final performance fee of 20% of gains over 8% p.a. 'Nuff said . . .

 

[Dman]

Yeah I agree with you in relation to the fees e.g. 20% bonus on a performance of 8% or greater seems to be alot more than the market.

I wonder will Pat grill him over those charges tomorrow night (very unlikely)...

However I will say this, most of the other funds (correct me if I'm wrong) that invest like this e.g. geared Euro property for a period of time eg. (5-10yrs), have a much higher min e.g. €15,000 or €20,000 and are really only aimed at very wealth people or existing clients.
At least this one gives the average punter access.
Although I think it's a disgrace if Eddie Hobbs or all people is encouraging people to go into debt for this type of high risk investment.

 

[ClubMan]

On the contrary, it is a rip off. Compare Brendan Investments' fees with Friends First's Insight Property IV fund. This is a geared fund investing in UK commercial property. The Friends First fund has been running for just under 2 1/2 years and is intended to have an approximately five year term. So far, it's showing a gain after fees of 81.4% - about 27% compounded annually. If Brendan Investments do as well they will be patting themselves soundly on the back. The Friends First fees are 0.75% p.a. of the value of assets under management and a final performance fee of 10% of gains over 10% p.a. - Brendan Investments will charge 1.00% p.a. of the value of assets under management and a final performance fee of 20% of gains over 8% p.a. 'Nuff said . . .

In my opinion it's not a rip-off if it simply levies higher charges than other comparable products. It could be though if the charges are not clearly divulged such that the punter can make a reasonably informed buying decision. Oddly enough I seem to recall Eddie Hobbs himself attributing the term "rip-off" to simple instances of high pricing (compared to alternatives on offer) but I would not agree with his stance on such matters.

 

[gonk]

In my opinion it's not a rip-off if it simply levies higher charges than other comparable products. It could be though if the charges are not clearly divulged such that the punter can make a reasonably informed buying decision.

Hobbs himself is quoted in today's Irish Independent as saying "the fees and charges for those thinking of putting money into the fund were low."

http://www.independent.ie/business/...83641bn-property-investment-fund-1071326.html

As I mentioned in an earlier post, I've looked at quite a few of these funds and contrary to the above statement, the fees - taking into account the performance fee - are the highest I've come across for a geared property fund. That in my terms is a rip off, especially when the fund promoter is trying to characterise the fee levels as "low".

Also, this fund is unique in my experience in encouraging and providing the facility for investors to borrow to invest in a geared investment. That is financial madness.

 

[gonk]

Well to be fair I get all my financial investment advice from the Evening Herald!!!

This is investment is being pitched at a mass-market level. Many of the prospective investors would not be particularly clued in financially and might well use the likes of the Herald as a source of financial knowledge.

 

[Riddler]

Moderators' Note

Riddler and Vanuatu posted very similar views in praise of this product. When pressed, Riddler agreed that he was Vanuatu and that it was due to IT problems that he re-registered. Suspecting a conflict of interest, we asked for a declaration of interest, which he has now provided. Attempts by Riddler, Vanuatu or any other user to drag the discussion off-topic will result in the posts being deleted.

Brendan
Administrator


Declaration of Interest:

(1) No association with Brendan Investments
(2) Will not be investing
(3) Know Eddie Hobbs quite well
(4) Independent thinker
(5) Know what I don't know
(5) Have my own opinion


This is a curious discussion. there are a number of faults in the analysis thus far. I've read the Prospectus in detail and I've studied many syndicated schemes over several years including the ones that never make the low end of the market, the retail life unit-linked funds upon which you rely for comparison. One can't accurately comment unless one has had access to the many syndicates filled by Private Banks and Stockbrokers and by comparison Brendan Invt PLC is exceptionally well priced IMHO.

You may find the following useful;

1. The PLC aims to allocate a quater of its capacity to DEVELOPMENT. That is of large significance. I put forward that the 1% amc is fuelling this section. Development requiries highly intensive management as is extremely expensive. If it is done well the IRR is usually in the range 20% to 40%. The comparison against 100% dry investment is deeply flawed but even at that the 1% GDV is very low. The Augusta scheme to which you refer has no development, 3% sales charge and a slightly lower AMC. Find a syndicate with a mix of Investment AND Development and I promise you, there will be higher charges and much less disclosure.

2. The performance bonus hurdle above 8% IRR at 20% is reasonable given the zero cost entry of the PLC and is only payable at the end. It is also superior to many development type syndicates that charge "Success" fees at exorbitant levels on top of higher AMC's and Bonuses.

3. The comparison of charges as a % of equity is bogus. It is 1% of the total equity and banking finance raised. First Time buyers don't pay 100% stamp duty or pay their solicitors 10%.

It is remarkable in my view that nobody has remarked on the effort to bring regulation and transparency to this rather murky market. Surely, this is the new standard if concerns about consumer protection are to be observed? The unsupported comment about the ODCE pursuing Hobbs is the worst example. The Prospectus would require to disclose all material matters and if I recall he was exonerated by the High Court.

You won't get one Bank, stockbroker, private banker or developer criticising this public scheme because it is better than most on charges and transparency. Honestly I think some anonymous posters should try to be more objective and not engage in settling grudges which comes across very strongly.

 

[LDFerguson]

Hi Riddler,

I said at the start of this thread that it seems like a good way to invest in European property and so would make a useful addition to a diversified portfolio.

But I'm getting increasingly concerned at the nature of the hype that's being fuelled by Eddie Hobbs. Take for example the Evening Herald article [broken link removed] - first line "...saying he could quadruple investments for members of the public..." - at first glance this would seem to be a forecast of >14% per annum growth for 10 years. The level of disclosure on the brochure and prospectus is undeniably welcome and for the protection of consumers, but is this sort of claim in a national paper with the demographic profile of the Herald being just as protective of consumers? My opinion is that many Herald readers will pay more attention to that claim than to the finer details of the prospectus.

The comparison of charges as a % of equity is bogus.

I disagree. If an investor puts in €100,000, the bank borrowing is €300,000, the total value is €400,000 and the Managament Company take €4,000. Even with my humble mathematical skills, I would call €4,000 a 4% charge on a €100,000 investment. As an investor, I'm only interested in my return and such a charge is ultimately coming from my return so it's appropriate that it should be expressed as a percentage of my investment.

I would also have a concern that this product is being mass-marketed by Hobbs although from what I can see on the website there will be no financial advice given by Brendan Investments.

As a follow-on from that point, of course potential investors are free to obtain financial advice as to the suitability of this product to their needs, but this will presumably come with a charge. Which sort of dilutes the comparison that is made on the website about the lack of entry charges being better than the 3 to 5% on other products. The 3 to 5% typically pays for commission and financial advice.

I agree that personalised swipes at Eddie Hobbs in this thread are not constructive (especially when they're inaccurate) but criticism of the product on its own merits is very useful in a forum like this.

 

[Sunny]

You won't get one Bank, stockbroker, private banker or developer criticising this public scheme because it is better than most on charges and transparency. Honestly I think some anonymous posters should try to be more objective and not engage in settling grudges which comes across very strongly.

Well then there won't any shortage of these people queing up to invest in it. If the charges are so low and the performance hurdle so reasonable, there are plenty of high net worth clients and private banking operations who will invest without the need to encourage small time investors to leverage up by borrowing to invest. Or are Eddie and the boys just doing it for the good of the small people of the country just so they can get a piece of the action??

 

[gonk]

The performance bonus hurdle above 8% IRR at 20% is reasonable given the zero cost entry of the PLC and is only payable at the end. It is also superior to many development type syndicates that charge "Success" fees at exorbitant levels on top of higher AMC's and Bonuses.

I have looked at quite a few syndicated property deals, maybe not as many as you, but they include non-development, development and mixed funds. None that I saw had a success fee this high levied on such a low performance target. If there is any kind of decent return on investment, this fee will dwarf even the most expensive entry charge for other comparable investments.

You won't get one Bank, stockbroker, private banker or developer criticising this public scheme because it is better than most on charges and transparency.

Well you certainly won't hear any criticism from NIB, who are providing loan facilities to gear up an already geared investment. Wonder how many NIB employees will be taking up this facility. (Hint: probably few to none!)

Honestly I think some anonymous posters should try to be more objective

I take it "Riddler" is your real name then?

 

[JohnBoy]

What are the benefits of investing in this type of investment vehicle as opposed to direct investment in a large quoted property development company?

 

[HorseBox]

Perhaps the returns would be higher?

 

[vanuatu]

Only extremely wealthy investors can directly invest in big commercial deals.

 

[JohnBoy]

I was not thinking of direct investment in a single deal.

I work for an asset management company and there are a good number of listed (i.e., publically quoted) property development / property management companies dotted accross Europe. Many of them are very sizeable, have liquid shares and have a verifable history of success.

This is how I would get exposure to the commercial property sector in Europe.

 

[extopia]

It seems a bit like the Irish Forestry Funds and Investment plans to me (except for the gearing). Get members of the public to buy shares at a relatively low price. Shares have no voting rights. Fund employs management team made up of Fund creators. Shareholders have no say in what constitutes reasonable managment fees.

Lots of other questions to be asked too - who does the valuation of the properties, which is critical to the remuneration of the promoters? And at the end of the term, who will buy the properties? Could the promoters set up a new fund (Fund 2) at that point and sell Fund 1's properties to the new fund? Who decides the selling price in such a case?

If this is successful, Fund 2 will be very popular, and the cycle continues, with potential pyramid effects.

Perhaps I'm overly pessimistic, but the Eddie Hobbs connection - or any attempt to use a media personality to attract the novice investor - would be enough to make me run a mile.