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

Discussion in 'Investments' started by Brendan Burgess, Dec 1, 2016.

  1. Brendan Burgess

    Brendan Burgess Founder

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


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

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

    elcato Moderator

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

    mathepac Frequent Poster

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

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

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

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

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

    Show me the money, indeed."
     
  4. Brendan Burgess

    Brendan Burgess Founder

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

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

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

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

    Brendan
     
  5. SBarrett

    SBarrett Frequent Poster

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    Last edited by a moderator: Dec 1, 2016
    Consumer champion my back. When property syndicates were all the rage during the Celtic Tiger, the minimum premium was €100,000. There is a reason for this. It's a risky investment with the money locked away for years. It wasn't suitable people who only had a few quid saved away. They lowered the minimum price to €5,000 and used Hobbs' popularity to market the thing...sure isn't he the great lad off the telly who gives out about the banks.

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

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


    Steven
    www.bluewaterfp.ie
     
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  6. Dan Murray

    Dan Murray Frequent Poster

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    Last edited by a moderator: Dec 2, 2016

    Incidentally, I thought there was a thread about this investment back in the day - but when I put Hobbs into the search engine, the answers seem to be limited to 2010? Am I doing something silly?
     
    Last edited by a moderator: Dec 2, 2016
  7. trasneoir

    trasneoir Frequent Poster

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

    Sophrosyne Frequent Poster

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    trasneoir and Ceist Beag like this.
  9. mathepac

    mathepac Frequent Poster

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

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

    Brendan Burgess Founder

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

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

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

    Brendan
     
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  11. Ceist Beag

    Ceist Beag Frequent Poster

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

    Bronte Frequent Poster

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

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

    And who made money? And how much.

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

    http://www.irishtimes.com/business/...d-firm-to-lose-90-of-investors-cash-1.2889232
     
    Last edited: Dec 2, 2016
  13. ronaldo

    ronaldo Frequent Poster

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  14. Sophrosyne

    Sophrosyne Frequent Poster

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    This thread is extraordinary.
     
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  15. MrEarl

    MrEarl Frequent Poster

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    How they concluded that changing investment strategy from investing in Germany (a steady economy with no FX risk etc. and even a relatively safe long term play during the crash) to investing in Detroit was a good thing I just do not understand, sure it's as mad as changing investment strategy from buying Irish Government debt to gambling with the funds at a blackjack table in Vegas !
     
  16. Jim2007

    Jim2007 Frequent Poster

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

    MrEarl Frequent Poster

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

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

    Brendan Burgess Founder

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

    This was an unregulated investment.

    The prospectus was regulated by the Financial Regulator.

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

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

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

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

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

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

    Brendan
     
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  19. mathepac

    mathepac Frequent Poster

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

    Brendan Burgess Founder

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

    Brendan