Sunday, 26 June 2016

Fees a premier source of income for Manx financiers


The controllers of a range of offshore investment entities, including the controversial New Earth Recycling & Renewables [Infrastructure] Fund which was supposed to finance a waste treatment facility for the Scottish Borders, racked up more than £22 million in fees and expenses in just two years, we can reveal.

Detailed research by Not Just Sheep & Rugby has pulled together the various income streams which poured into the Premier Group (Isle of Man) PLC's coffers from their various investment funds in 2013 and 2014, the year in which annual accounts ceased to be published for most of their investment activities.

According to a large number of case files which can be read on the Financial Ombudsman Service website, financial advisors should never have 'sold' these funds to individual investors. Instead they should have been restricted to specialists.

As a result of complaints concerning at least three of the funds in the Premier investment range, the Ombudsman has ordered finance firms to pay compensation running into hundreds of thousands of pounds after the chosen investments were deemed unsuitable or far too risky.

In one case an adviser who told a client to place £100,000 into the NERR Fund failed to provide any specific explanation as to why the Premier New Earth Fund was more suitable than any other fund. The investigation discovered that as well as his role as an adviser, the person involved also had a role in Premier New Earth and Eclipse, the controllers of NERR.

The Ombudsman service concluded: "NERR was complex and presented significant investment and illiquidity risks. Therefore I am not satisfied that it was a suitable recommendation in the circumstances".

There have been similar complaints upheld from investors who lost out after sinking substantial sums in some of the other Premier funds. But each investment vessel has  produced a healthy source of income for the Manx company. Here is what we found:

Premier Eco Resources Fund - invests in bamboo plantations in Central America and South Africa. The following fees were taken from the fund by Premier Group in the company's capacity as managers and promoters:

Management fee in 2014 £90,906 (2013 £21,740); promoter's fees £598,176 (£163,053); sales and marketing £1,843,371 (£905,897). Premier was also entitled to a performance fee of £598,176 in 2014 (£248,995 in 2013). Total expenses levied on the fund, which was suspended on the Channel Islands Stock Exchange as of May 14th 2015 came to £5,341,643 in 2014 and £1,438,483 the previous year.

The managing shareholder of the fund is a company by the name of Premier Group Distribution Inc., registered in the British Virgin Islands (BVI) and which features on the leaked Panama Papers register. It is owned by two of Premier Group's directors.

Meanwhile Eco Bamboo Isle of Man Ltd [EBIOM], the business involved in the overseas investments, has given notice of an extraordinary general meeting in Douglas, Isle of Man on July 5th when shareholders will be invited to sanction additional borrowing of "around 30 million dollars" on terms approved by the company's directors in their absolute discretion.

Investors are told the extra cash is required until EBIOM's bamboo plantations become financially self sufficient. EBIOM needs 15 million dollars over the next two years to meet ongoing costs. "After this time ongoing operating costs are expected to be covered by the income generated by the plantations."

There appears to be an element of risk in this venture too. Information made available to potential attenders at next month's meeting shows an organization called Sustainable Asset Lending [SAL] based in Delaware, USA, has already provided loans of 6.3 million dollars to two entities which are wholly owned by EBIOM.

As security, these so-called entities have granted charges in favour of SAL over all their assets, including the plantations which represent substantially all of the underlying assets of the Eco Resources Fund. In other words the entire operation is already mortgaged to the hilt.

That has not stopped a very healthy collection of fees being transferred from the fund to Premier Group over a two-year period. These comprised a management fee of £90,906 in 2014 (£21,740 in 2013); a performance fee of £598,176 (£248,995); promoter's fee £681,797 (£163,053); sales and marketing £1,843,371 (£905,897).

Premier Balanced Fund - invests in "mixed assets". Managing shareholder is Premier Balanced Distribution Inc., another BVI entity.

In 2014 Premier Group was paid a £20,539 management fee (2013 £24,144), a promoter's fee of £75,609 (£90,541); investment manager's fee £25,673 (£30,180) and directors fees totaled £16,500 (£20,250). The total in "expenses" - including fees - came to £234,792 (£255,422) even though the Fund recorded a loss of £3.9 million between 2013 and 2014.

Premier Diversified Property Fund - has three sub funds which invest in UK commercial property. In 2014 the net loss after tax for the various sub-funds were £ sterling sub fund £13.619 million; Euro sub-fund £2.295 million; Dollar sub-fund £1.231 million.

However, this disastrous financial performance was achieved against the following background of fee-taking by Premier Group. A management fee of £204,000 in 2014 was identical to the sum paid in 2013 while directors' fees also remained static over both years at £54,000. But a somewhat mysterious "other expenses" heading accounted for £1,648,968 in 2014 (2013 £1,143,095).

Premier Portfolio Fund - various options. The 2014 accounts were prepared on the basis of breaking up the fund with proposals for investments to be transferred to another vehicle. The Fund registered a comprehensive total loss of £531,160 in 2014 after losing a massive £8,535,542 in the previous 12 months.

Premier Group's fees are listed as management fees £28,670 (£32,183); promoter's fees £100,477 (£126,904); directors' fees £25,600 (£21,600). The fund had total expenses, including fees, of £271,864 (£290,579).

Premier Low Risk Fund - traded endowment policies. This fund did produce accounts in 2015 although they included a warning that the fund "may close in the next two years".

Premier's fee in the role of promoter amounted to £131,182 (£188,187) with directors' fees recorded as £28,350 (£29,568). The Fund's total expenses (including fees) added up to £387,687 (£485,895).

Premier New Earth Fund - "an opportunity to invest in recycling and renewables infrastructure in the UK". Unfortunately this is the fund (known as NERR) which could not provide the money for the £21 million Scottish Borders waste treatment facility. The fund now faces oblivion following the appointment of joint provisional liquidators earlier this month.

Despite being unable to fulfil its role as funder to New Earth Solutions and Scottish Borders Council for the Easter Langlee project this fund proved to be the most lucrative for Premier Group. In 2014 it yielded £2,472,452 in promoter's fees (2013 £1,965,521) with sales and marketing expenditure mopping up £3,937,196 (£4,441,875. There was also the small matter of a management fee of £264,641 (£218,902).

Total fees and expenses for the six funds we examined came to £12,027,222 in 2014 and £10,748,821 in 2013. And all of the payments were made while Scottish Borders Council was relying on the Premier NERR fund to deliver a waste treatment plant. Did Borders councillors make any attempt to find out what was taking place behind the scenes?

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