Mike Davies, chairman of Connaught Asset Management, said:“Our decision to temporarily suspend applications into, and redemptions out of, the Connaught Income Fund Series 1 has been taken while a detailed review of the assets being used as security for the loans in the Fund is ongoing.
“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 per unit in the Fund.”
Davies said Connaught needed to investigate fully in order to determine the true NAV adding that 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”.
And he stressed: “As stated, this is a highly prudent approach and is in no way a reflection on the current performance of Tiuta or the fund. Instead it is a course of action to make sure there can be no doubt that all of the loans are fully recoverable."
All distributions from the fund will continue to be paid as normal during the review period and Davies said he believed Tiuta would be able to generate sufficient extra capital in order to provide the cover for any potential shortfall.
He said: “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. This decision has been taken in agreement with the fund operator and the directors of Connaught Asset Management and Connaught Administration Services.
“We anticipate the review will take a further four weeks to complete after which we will be communicating again with all investors.
“We would also like to point out that this decision only affects the Income Fund Series 1 and has no impact or bearing on any other Connaught product.”
Steven Nicholas, chief executive of Tiuta, said: “As Connaught has pointed out we are undertaking this prudent course of action in line with the results of the recent review.
"To do otherwise would certainly not be in the interest of our stakeholders and we see no issues at all in covering any potential shortfall.
"This is very much a legacy issue regarding some of the earlier loans – these assets have not recovered their value following the major economic upheaval we have witnessed during that time.
"In terms of Tiuta’s current performance, we are now a much leaner and efficient operation than back then and our recent lending activity is something we are all proud of. In effect it is business as usual for Tiuta and we are ensuring that all issues are dealt with as quickly as possible.”
