The asset manager says a detailed review of the assets used as security for loans made through the unregulated collective investment scheme (Ucis) is “ongoing”.
Mike Davies, chairman of Connaught Asset Management, says: “The review has so far highlighted the possibility that a small percentage of the loans may be under-secured, which means if all assets were sold immediately to repay the existing loans, there could be a shortfall.
“This potential shortfall would have an impact on the NAV [net asset value] per unit in the fund.”
Davies says: “We therefore need to investigate fully in order to determine the true NAV and in order to complete this review we have acted immediately and prudently by making this decision to protect investors’ capital values.
“Any potential shortfall will be covered by the specialist partner for this fund, Tiuta.”
Davies says this was a “highly prudent approach and is in no way a reflection on the current performance of Tiuta or the fund”. (article continues below)
He adds: “All distributions from the fund will continue to be paid as normal during the review period and we believe Tiuta are able to generate sufficient additional capital in order to provide the cover for any potential shortfall.
“While this is not a course of action we wanted to take we believe it is absolutely necessary in order to protect our investors’ investments.”
The move was taken in agreement with the fund operator and the directors of Connaught Asset Management and Connaught Administration Services.
The review is expected to take another four week to complete, after which it will contact investors.
Davies says the review only affects the Income Fund Series 1 and has no impact on its other products.
The fund lends to bridging lender Tiuta “to finance short-term bridging loans with a target LTV [loan-to-value] of 75%”, with all loans to Tiuta secured by a subordinated loan charge over the property.
No further statement will be made by Connaught Asset Management.