Questions raised over Tiuta's new £300m funding line

Questions raised over Tiuta's new £300m funding line




.

Tiuta’s recent announcement of a new funding line has caused a stir following an analysis of the fund, and the firm’s decision to lend up to five years.

In a statement released last Thursday

, the London-based bridging lender announced it had secured a new funding line through the Connaught Income Fund Series 2, alongside a new ability to lend up to five years.

 

“The open ended fund has a revolving value of up to £300 million and from it Tiuta has the ability to lend with terms of up to five years,” read the statement.

 

B&C has made enquiries with Connaught and has been told that investors into the fund have a 30 day withdraw option, so long as the minimum remaining investment is above £20,000.

 

The fund is also restricted to, initially, an investment of £20 million a month on a first come first served basis.

 

When B&C spoke to Connaught Asset Management, the firm pointed to the year long process during which Connaught carried out research to prepare the fund, and the three years of experience it already held in the market.

 

“During the period of development of Series 2 we worked closely with the selected trustee and administrator in Guernsey, major legal firms, and spent nearly a year in consultation with the Guernsey Financial Services Commission (GFSC) over the fund structure and objectives – including discussing every element of investor risk which could be identified – before the GFSC would approve the fund,” said James Allen, Connaught’s new funds director.  

 

Referring to Tiuta’s new facility to lend up to five years, Mr Allen pointed to a ten per cent cap on medium term lending and said: “The Scheme Particulars already make it clear to advisers that no more than 10% of the funding line can be lent on loan terms in excess of 36 months.” 

 

Mr Allen contiuned: “The fund will have a built in liquidity ratio of 5% of the Gross Fund Value, plus any redemptions in their notice period but unpaid. In addition to the retained liquidity, after the first six months from the date of the first loan made through the fund, our experience tells us there is a regular flow of loan redemptions back into the Fund from Tiuta.” 

 

Responding specifically to the issue of ‘borrowing short and lending long’, Mr Allen said: “Connaught does not accept "this is a risky way of lending money" because of the liquidity structure set out above.

 

“We would like to point out that every building society in the land ‘borrows short’ and has done so for over a 100 years, with ordinary share accounts having no notice requirements at all, and ‘lends long’, i.e. up to 25 years not 5 years.”

 

In an

article in the FT Advisor

no mention of the headline grabbing £300 million figure is made, rather the fund is described as an “authorised open ended unit trust”, with the director Alistair Mawdsley, highlighting the current investment restrictions.

 

"Interest in the fund has been considerable and new inflows will initially be restricted to £20m a month on a strictly first come first served basis," he said.

 

Tiuta say: “We have an open and honest relationship with our broker partners and our existing customers. As an FSA authorised lender, we are under a duty of care and we treat that responsibility very seriously. 

 

“Having funding of up to £300 million in no way suggests we are currently sitting on that amount of money and we will continue distributing these funds in a wholly responsible manner as we did with the Series 1 fund.”

 

When asked why they selected the £300 million figure when the

Connaught Income Fund Series 2 literature

, states that Connaught’s intention is to reach a fund size of £500 million, Tiuta said: “The fund target, as set by the investment manager and published in the Scheme Particulars, is £500 million but this, it being an open ended fund, is no more than a target. 

 

“We have quoted £300 million as we are confident we have the capacity from known markets and products to achieve this level of lending.”

 

Leave a comment