The IFA briefing session
was held yesterday at the Regency Hyatt Churchill, followed by the inaugural
Investor Committee meeting and a briefing with the trade press. We welcome fair
and accurate reporting as we believe an open book resolution to the suspension
is called for. Approximately 100 IFAs attended the briefing. This note provides
an update on those discussions for those not able to attend and a record of the
meeting for those that were.
We would like to set out the views of cru Investment Management plc about what
is needed to re-establish an orderly market for the CF ARCH cru Fund range.
We believe there is a need to reduce the pressure to sell the funds'
assets, so as to ensure that liquidity issues do not keep re-emerging with the
risk of ongoing suspensions. The secondary markets for many types of asset have
collapsed, unless on a deeply distressed basis. Currently, whilst we do not have
information on the portfolios in the CF ARCH cru Fund range specifically, we can
say in general that it is a bad idea to sell anything into a non-existent
market. For instance, ignoring land value, a property may cost, say, £100,000 to
build. One would have to say that its value is therefore £100,000. However, the
conventional valuation methodology states that the value of this property is
only worth what someone is prepared to pay for it. Say then, there is only one
bidder for the property and he is prepared to pay £1. Does that mean that the
market value is £1? This is an over simplification to make the point that, until
demand for assets re-emerges, it is a dangerous task to seek to price
them.
Unless liquidity can be created for the Funds at fair value, there is
the risk that quality assets will disappear into the numerous so-called "vulture
funds" that have been set up to take advantage of chronic illiquidity in asset
markets.
cru is therefore proposing a revised structure for the CF ARCH
cru fund range, that we believe would create an orderly market for both
subscriptions and redemptions, whilst protecting long term value for investors.
We propose the following changes to the operation of the Funds;
i)
Subscriptions
The Funds
should move to a monthly subscription
basis.
ii)
Redemptions
A
redemption gate should be put in place based on three months notice and limited
to 5% of assets on each redemption date. If redemptions exceed 5% of assets,
then all redemptions will be pro-rata. The extent to which redemptions couldn't
be met will be treated as priority redemptions at the next redemption
day.
iii)
Tax
Many
investors have invested through tax structures, such as ISAs and off-shore bonds
and it is important that any changes to the operation of the Funds do not
undermine qualification rules for existing investors into these tax
products.
A
letter to this effect has been submitted today to ARCH, Capita and the FSA.
You may have received some communications from Capita to notify you about
its dealing status.
What does this mean? Capita, being the owner of
the fund, took the decision on Friday 13th to suspend trading in the
fund until liquidity issues are resolved. Liquidity means the amount of cash
(liquid asset) that is held by a fund.
Why has this happened?
The liquidity issues have
resulted from a number of factors but principally from people surrendering
their holding early and cash being used to facilitate this. The aim of this fund is that it is held as a
3-6 year investment but some investors have been encashing early as
they do not want to touch their other investments that have declined sharply in
value.
The underlying investments
that make up this fund are not highly liquid in nature (much the same as
property at the moment) and this has been compounded by the current
UK economic
situation.
What does this mean for you?
At the moment as dealing is
suspended you can not encash your fund. We feel this is a positive step for our
investors as it protects the investment from forced sale of assets at a time
where maximum value may not be reached.
What we are doing…
Please rest assured that we
are closely monitoring the situation with this fund and will keep you abreast
of any news. We are meeting with Cru
this week and will continue to until this is resolved
If you have any queries or
questions please do not hesitate to contact us.
