When television personality Eddie Hobbs launched the geared property investment fund Brendan Investments to the masses in 2007, a 90 per cent loss of the investors' money wasn't in the script. But that is what appears to be on the cards, according to angry shareholders who received the news from management at the company's annual general meeting at the Red Cow Moran Hotel in Dublin a few weeks ago.
Fuelled by housewives' favourite Hobbs's celebrity pulling power, Brendan Investments Pan European Property (Bipep) fundraised almost €13 million from small investors at the fag end of the boom to invest in property in Ireland, Britain and Europe. Some 700 investors, including the tailor Louis Copeland, each put up a minimum of €5,000. Now, they all seem set to lose their shirts.
Shortly after the fundraising closed in early 2008 – the year that everything everywhere went south – Bipep’s timing initially looked atrocious for a property venture.
But the fund didn’t actually make any investments until after the market crashed so, theoretically, it should have been able to pick up assets in its target markets at bargain basement prices. The Irish commercial market, for example, has been among the best-performing in the world in recent years.
Mess
So how on earth has Bipep managed to blow almost all of its investors’ money? It sounds like the sort of mess that Hobbs would have relished tackling on one of his consumer shows, if only he wasn’t the guy who had sold the idea to everyone in the first place.
Although he retains a 4.5 per cent stake in the business, the voluble Corkman resigned as a director when he colaunched the political party Renua in 2015, by which time most of the damage was done anyway. Hobbs this week referred all queries over Bipep's disastrous performance to his cofounders, Vincent Regan and Hugh O'Neill, who operate the venture.
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.
Aside from the obvious risk inherent in entering such a tough sector, what was a fund that was marketed to the public as a sober European venture doing in the US distressed property market in the first place? One shareholder described Bipep as being like “lambs to the slaughter”.
Regan told shareholders at the recent agm that most of the company’s capital has been obliterated, and that they would get perhaps 10 per cent back of their money back if the fund is wound up as scheduled in a little over a year. A shareholders’ representative has been appointed to liaise with the board to devise a report on the future of the company.
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.
Bipep, meanwhile, remains in the mire. A set of options are expected to be presented to shareholders at an extraordinary general meeting early next year. The fund could even be extended on a year-by-year basis beyond its original 10-year timeframe if shareholders accede, though that would be extraordinary indeed given the job the fund’s managers have made overseeing its investment to date.
When the geared fund was launched in 2007, Hobbs was energetic in his criticisms of those in the media who scrutinised the venture and warned retail investors that it was high risk.
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.
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FOOTNOTES
– It is interesting to see Dutch hedge fund manager Bram Cornelisse continuing to snap up shares in Independent News & Media. His Farringdon Capital Management company roared through the 5 per cent barrier in recent days, although he has been steadily increasing his stake all year to become the third-largest shareholder after Denis O'Brien and Dermot Desmond.
Cornelisse's latest buying spree came in the midst of the share price turmoil created by the very public row between chairman Leslie Buckley and chief executive Robert Pitt over how much to offer for a since-abandoned proposed buyout of Newstalk. As revealed in The Irish Times, Pitt wanted to offer a lower price.
Hedge fund managers have a bogeyman aura in some quarters, and their emergence on share registers can spark all sorts of rumours about their motives. Might they be plotting takeovers?
At INM, however, the truth is probably a lot less exciting. O'Brien and Desmond, who have thus far voted together, are virtually an immovable force in Ireland's biggest publishing group. Farringdon generally seeks out long-term investments based on fundamentals, not short-term opportunities driven by turmoil. Cornelisse, a former analyst at Merrill Lynch, was probably just taking advantage of the share price dip to reduce the average price at which he bought in to the company.
– Former Ireland and Munster rugby star Frankie Sheahan is ramping up the advertising for his Pendulum Summit, a two-day business motivational jamboree next month at the Convention Centre in Dublin. The summit this week had a flurry of ads in the corridors leading to the arrivals hall of Dublin Airport, which don't come cheap.
"Unleash your warrior mindset" is the summit's rather hokey theme this year. Among the companies that, according to the marketing literature, will be represented at the event are Independent News & Media (where there are possibly too many warriors at present), Heneghan PR (which is closely aligned with INM chairman Leslie Buckley), Actavo (previously known as Siteserv, another Denis O'Brien company that is no stranger to beiing in the wars), Communicorp (whose asset is the source of the current warring at INM) and Topaz Energy (part of the fuels group that O'Brien recently sued).
There are warrior mindsets aplenty there already, I suspect.
