As the developer will only obtain their profits after the fund investment has been repaid, the safety of the investment is reasonably secure.
For extra security, the shares in each company that’s specifically formed to invest in each development can be held by a reputable professional nominee or institution, such as an international bank.
The fund itself is located and administered in a jurisdiction that pays no tax on the generation of income or capital gain. Individual investors need to consult their own professional adviser to determine exactly how their return will be taxed in their home country.
No. Your own pension fund, private investment company or specially created limited liability partnership can invest.
The fund will initially be open only to “Experienced Investors”. This means that they must pass certain criteria laid down by the EU to control investment in specialised areas. In principle, an investor needs to invest a minimum of €100,000 although this is reduced to €20,000 where an investor has a net worth of at least €1 million. In some cases, it’s possible for an individual who satisfies the asset test to make a lower investment, provided that this is with others of his family or an “associated group”.
Shares in a particular development will be redeemed to you at a profit, as anticipated on the investment term sheet, which you enter into at the start of the investment transaction. You will have the opportunity to withdraw the money completely, or to re-invest it fully or partly. If you choose to invest further, you will be issued shares in a different project, which will have its own term sheet, returns and timetable.
An investment is made for a minimum period. This is typically 18 months, but it can be up to 36 months depending on the particular development. The first point at which you can redeem the shares is normally 18 months after investment. In an emergency it may be possible for you to sell your shares, and in these cases a penalty will apply. This will be outlined in the Private Information Memorandum for each investment
In some cases, demand for shares will exceed supply. It may be possible for the administrators to arrange the sale of your shares directly to other investors. In this case you wouldn’t realise the full amount projected in the term sheet, as you wouldn’t have held the investment until maturity. You might however realise the sum invested plus a small gain, depending on availability of new investors.
The executor of your estate would need to decide. It’s possible that the fund investment might well continue as before, to ensure that the capital continued to build up for the benefit of the investor’s family or other beneficiaries.
The promoter will provide a good stream of developments for the fund to invest in. Only when these are sold and a profit realised does the management adviser fee become payable.
The promoter is very confident of realising the stated return. On the basis that equities and bank accounts will yield on average around 8%, the promoter charges no money until a benchmark of 15% averaged per annum over the term has been passed. This means that if the investment return is only 15% or less, no management adviser fee at all is payable.
Above this level, the management adviser fee agreement takes a quarter of each percentage point increase. The investment pool increases by 0.75% for every additional 1% return. The promoter will typically be aiming for a return in the region of 20% upwards. If the gain of 20% is realised, the management fee will be 1.25% (i.e. 20% less 15% = 5% X 25% = 1.25%).