An investment choice with stable returns and security
Consulco Capital Ltd, a Cyprus external manager of collective investments, has obtained authorisation by the Cyprus Securities and Exchange Commission to manage the LC London Credit AIF V.C.I.C. Public Ltd (‘London Credit Fund’), a private equity open-ended fund, with variable capital. London Credit Fund invests through its subsidiaries into short and medium-term business loans, which are facilitated in the UK and are secured against London real estate.
Among others, the minimum amount which an investor can participate in the London Credit Fund is €125,000, with a minimum lock-up period of 12 months. Redemptions are taking place monthly, upon giving a six-month notice, whereas the dividends are paid quarterly. The fund administrator is KPMG and Eurobank acts as the depositary bank. It should be noted that BDO Cyprus has been appointed as the external auditor.
The aforementioned underlying bridging loans are originated, underwritten, structured and prefunded by London Credit Ltd, a UK company and subsidiary of Consulco, which is a well-established and a ten-year experienced London based short term lender. For completeness, it should be pointed out that London Credit Ltd, retains the loans administration throughout the whole loan period up and until their full settlement.
Until today, London Credit Ltd facilitated more than £130 million worth of loans achieving an impeccable performance.
London Credit Fund has nine classes of investor shares, three in Euro, three in GBP and three in USD[NK1] . The target return for EUR is 4%+ p.a., whereas the target returns for GBP and USD is 5%+ p.a.
At this point it should be noted that London Credit Ltd which is the fund’s loan service provider has achieved an average of 6% p.a. for its GBP investors, in the last 9 years.
In a period when other investment options cannot provide material income returns (e.g. bank deposits with negative interest rates and low yield treasuries), the London Credit Fund compares superiorly against other investment products because it offers high yields, while the underlying investments are assets secured with real estate in London and the investment horizon is short and flexible.
Due to its attractiveness, the Fund is presented by banks and various professional advisors to their clients.
With a view to provide a complete picture to the investors, we have summarized below the possible, yet manageable risks which might arise from the specific investment product, and how these will be mitigated:
UK Property market
Since the assets securing the loans are mostly London residential property the fund is exposed to the London residential property market risk, with a protection buffer zone however, of at least 25% since the maximum Loan to Value is 75%. It is noted that the largest ever year to year price decline for the London residential market since 2009 has been 22%.
The London property market is one of the most attractive property markets in the world. By saying that its relatively easy to estimate a property sale value and the required marketing period, as there is abundance of recent and relevant transaction comparables available to the valuers. All security properties are valued by independent RICS registered valuers that have a professional indemnity of up to £10 million. Therefore, any potential conflict of interest in the valuations of assets is largely mitigated.
As mentioned above, all the loans are secured against London real estate while their Loan to Value does not exceed 75%. The UK legislation and enforcement procedures ensure swift enforcement of security when and if deemed necessary by the Lender. More specifically, security enforcements take approximately 2 months to be finalized without involving any Court proceedings. The UK property market liquidity ensures a fast sale of the security property, in cases where this is required.
Managing Property Fraud and Legal Risk
An important risk that its essential to be mitigated is the legal risk and property fraud. As part of London Credit Ltd diligent internal processes, all checks necessary are performed, while experienced third-party UK licensed solicitors are engaged to carry the due diligence on the borrower and the security property in order to ensure that there are no irregularities or other fraudulent transactions involved. London Credit Ltd has also a fraud insurance of up to £5 million while its external legal advisors are insured for a minimum amount of £3 million.
In cases where the initial currency of the London Credit Fund is EUR or USD the investment might be affected by exchange rate fluctuations between the GBP and the initial currency. We anticipate those risks and mitigate their impact by hedging them into future contracts (currency hedging).
We take good care so the liquidity of the London Credit Fund is constantly managed and measured. The three main actions taken towards that direction are the following:
- The fund will always maintain 10% of its assets under management in cash.
- The subsidiaries of the London Credit Fund will participate in short-term bridging loans with an average duration of 9 months. On average, the 11% of the abovementioned bridging loans is anticipated to be redeemed every month, hence achieving additional liquidity for the Fund, in case needed.
- If redemption requests, over a specific period, exceed the 10% of the investment compartment’s assets, then such requests will not be permitted beyond the said percentage, in order to protect its liquidity.
Managing Concentration Risk
The subsidiaries of the Fund will participate in bridging loans usually in the range of £100,000 to £3,000,000, whereas the exposure to a specific loan cannot exceed the 20% of the London Credit Fund’s whole portfolio value. In addition to that, the participation in bridging loans having 2nd instead of 1st charge security over the property will not exceed the 15% of the size of the London Credit Fund.
Investment Product with limited exposure
We are of the opinion that in an investment world of uncertainty and great volatility, the London Credit Fund provides a very constructive combination of returns and security.
As analysed above, the product risks are known to us and mitigated significantly in a way where the investment risk is a safe and calculable parameter. Under any circumstances, our experienced and agile team of professionals is ready to take all the necessary proactive measures to mitigate any other additional risks during the management of the London Credit Fund.