A fortnight ago, it was reported on here that NAMA was setting up something called a Qualified Investment Fund or QIF. This was prompted by NAMA issuing a tender for “investment management services”. A QIF is an investment fund which gets rich individuals and companies to pony up some cash which the investment fund then invests in assets, manages the assets and hopefully makes a profit and the investors get a return and can sell their stake, hopefully for a profit. It seems that the NAMA QIF will acquire assets that NAMA controls. I say “seems” because NAMA has declined to provide any more information on the QIF other than the bare details contained in the tender document.
At the end of last week, NAMA issued tenders for the provision of what it calls “custodian” and “fund management” services, and reading the tenders it seems this is for administration, accounting and some legal work.
So in summary, NAMA is intent on setting up an asset management fund. NAMA will sell assets to the fund. Presumably the fund will value the assets and ensure that due diligence checking is done on the assets and accompanying paperwork. The fund will have a third party managing the assets. The fund will have third parties providing accounting, administration and legal services. The fund will seek investment from rich individuals and companies and the fund will aim to make a profit. Now change the word “fund” to the word “agency” and ask yourself if NAMA is setting up a mini version of itself.
Now NAMA might not want to provide any comment or background to the QIF on here, but surely the Oireachtas committees which oversee the work of NAMA know about this initiative. After all there are 27 members – TDs and senators – of the Committee of Finance, Public Expenditure and Reform and the public accounts committee has 13 members, though there is some duplication of members between the two committees. These committees have both quizzed NAMA since September 2011. So surely they know what NAMA is doing with setting up a Mini-Me version of itself. And surely they can answer the following questions.
(1) How big will these funds be – €10m, €1bn, €10bn?
(2) What assets will be transferred to them?
(3) Will there be yet more loan and property valuations and due diligence before assets are transferred to the funds?
(4) How will the funds be marketed?
(5) Is this merely a means for NAMA to increase its headcount without affecting its topline 200 employee claim?
(6) Whose initiative is this?
(7) Will the initiative prevent property coming onto the market and thereby prevent property reach a clearing price and bottom?
The Committee of Finance, Public Expenditure and Reform whose membership is the following TDs and senators: Richard Boyd Barrett, Michael Creed, Jim Daly, Pearse Doherty, Stephen Donnelly, Timmy Dooley, Sean Fleming, Joe Higgins, Heather Humphreys, Kevin Humphreys, Peter Mathews, Mary Lou McDonald, Michael McGrath, Michael McNamara, Olivia Mitchell, Jonathan O’Brien, Kieran O’Donnell, Arthur Spring, Billy Timmins, Liam Twomey, Alex White, Sean D Barrett, Thomas Byrne, Michael D’Arcy, Aideen Hayden, Tom Sheahan, Katherine Zappone
And the Committee of Public Accounts whose membership is the following TDs and senators : Paul Connaughton, John Deasy, Paschal Donohoe, Anne Ferris, Seán Fleming, Simon Harris, Michael McCarthy, Mary Lou McDonald, John McGuinness, Eoghan Murphy, Derek Nolan, Kieran O’Donnell, Shane Ross
UPDATE: 15th February, 2012. The Minister for Finance, Michael Noonan has today responded to a number of written questions on the NAMA QIF submitted by Pearse Doherty, Stephen Donnelly and Michael McCarthy. Here’s what the Minister had to say “I am informed by NAMA that it is currently tendering for Investment Management, Custodian and Fund Administration services with a view to establishing a Qualifying Investment Fund (QIF). Preparations are currently being made by NAMA to obtain the requisite regulatory approval and to set in place the appropriate governance and operational arrangements with a view to establishing a number of such funds during 2012.
The proposal emanated from within NAMA and has received approval in principle from the NAMA Board. NAMA advises me that the analysis which was presented to the Board contains commercially sensitive information and it has no plans to publish it.
The proposal would involve NAMA acquiring property assets, on an arm’s length basis, from receivers (or from debtors who would cede secured property directly to NAMA) and to package them into various combinations which could be monetised through sale to investors. It is proposed to assemble portfolios based on asset types (office, residential, retail, etc.) or geographical region (Ireland, Dublin, UK, etc.) and to secure international investment based on specialist investor preferences.
It is not envisaged that additional due diligence will be required given the substantial amount of information which has already been collated on loans and on the property assets securing them.
If regulatory approval is granted, the Board will consider issues such as the size of the QIF and its marketing.
It is not envisaged that additional recruitment of staff will be required as the administration and management of the Fund will operate on an arm’s length basis from NAMA.”
It seems that NAMA is at present unable to establish the order of magnitude of these QIFs – note the plural “s”, NAMA is intended to create a number of them. However you might expect the QIF managers where NAMA has tendered to have been given an idea of the size in order that they could bid for the work. It is indeed strange that no further valuation/due diligence will take place with the transfer of property to a QIF and NAMA appears not to want to answer questions just now as to whether the QIF is a vehicle which allows NAMA to increase its headcount by employing more third party suppliers.
UPDATE: 17th February, 2012. NAMA has issued a Q&A sheet in support of its tendering for a management company. It is amazing to me that much of the information in this Q&A was not originally contained in the original tender documents as it is quite basic information, which incidentally seems to contradict Minister Noonan’s responses above. It seems that the QIF will have due diligence and valuation of assets acquired because today’s Q&A says “It is envisaged that property due diligence will take place primarily at sub-fund level” and ” It is envisaged that the QIF will appoint the independent valuer ” and ” The assets acquired by the QIF will be valued prior to acquisition “. Also NAMA now says in response to the basic question about the size of the QIFs “this information is not known at this time but initially it is likely to be less than €500m”. Also the QIFs will only have real property and will not include loans or financial products. The the Q&A sheet is here.
UPDATE: 22nd February, 2012. I can’t recall there being so many questions that have arisen on the part of interested contractors in response to a tender but today NAMA has issued yet another Q&A sheet for the role of QIF manager. We don’t learn very much except NAMA’s original tender was obviously deficient if so many questions have been submitted. We learn that NAMA expects to launch two QIFs by Q3, 2012. NAMA seems evasive when responding to what seems an obvious question as to why it isn’t employing managers inhouse – “NAMA is acting as promoter to the QIF. The regulatory structure of a QIF requires an investment manager at platform level to assist it in the selection and monitoring of sub-fund managers” The new Q&A sheet is here.
UPDATE: 2nd March, 2012. The QIF continues to take shape as NAMA today releases more Q&As, this time in respect of the tender for custodian and fund administration services. The Q&As are here, but we learn that many aspects of the funds operation remain to be determined by the NAMA board, the investors will be identified through “reverse enquiry” – which is where potential investors will approach the QIF with a specification for the securities issued, not clear exactly how this will work in respect of a QIF. Again NAMA says that it intends creating two QIFs to begin with and indicates a value of €500m though it’s unclear if that “each” or for both. In addition to real property, the QIF may hold “shares or units related to property”. It is “possible” that a performance related fee will be charged by sub-fund managers. NAMA will be an initial investor in the QIFs but expects to dispose of its interest “over time”, presumably by 2020.
UPDATE: 3rd March, 2012. I don’t think I’ve seen as many Q&A sheets being issued by NAMA further to the issue of a tender as I have with these QIFs. Yesterday a further three Q&A sheets were published additional to the one reported above. The sheets continue to demonstrate confusion amongst potential tenderers, some of which you’ll get with any tender but it is beginning to look as if NAMA’s planning for its QIFs is deficient because many of the questions go unanswered. For example one question asks how NAMA can have a seven-year QIF when the Central Bank of Ireland limit is apparently three years. Unlike NAMA’s own property assets, the QIFs’ assets will be valued twice annually. Neither the target investor base nor numbers are known at this time. The property in the QIFs “is anticipated” to be located in Ireland and the UK. Surely this is of primary concern and if you’re a manager of a QIF which understands the UK and Irish property markets, you’ll want to know if NAMA might throw you a curve ball with a Russian, Indian or Cape Verdean property? NAMA says that the QIF will not be offered to the public but that Irish-based investors will be allowed invest. NAMA hasn’t decided how title insurance on the QIFs’ assets will work and if the fund will avail if gearing – now this is basic stuff and it is unsettling that NAMA is engaging in a tender process without having worked out these details. The QIF will be required to engage a range of external service providers including managing agents, external accountants, legal advisers and appraisers. The Q&As also say “54. Will the fund receive a DD sign of pack for each property?
a. Legal DD, Confirmation of title?
b. Technical, i.e. all buildings structurally sound?
c. Environmental?
d. Measurement Surveys?
e. Market Valuation?
A: Yes, full due diligence will be carried out before QIF acquires the assets.”
In other words there will be a second round of due diligence before these assets are passed to the QIFs. “DD” above means “Due Diligence”. The three Q&As released yesterday afternoon are here – one, two, three.
The agency….’values the assets’…again…same assets which have been valued many times. Why on earth have certain activities in NAMA, the elephant in the room, never been critically reviewed by politicians? Namawinelake is the only consistent source of information on NAMA. Personally, I feel that this is due in part to how it was originally ‘set-up’. A review of the roles of the parties prior to enactment of the legislation seems in part to explain this.
Its a bit of a three card shuffle.
The QIF seeks investment from investors who currently wouldn’t touch NAMA with a bargepole.
NAMA sells “performing” assets to the QIF, which is independently managed, at current market value.
NAMA records a disposal, books the loss (it inevitably will be), you and I get to pay for it.
The QIF manages the performing assets and makes money, which we don’t get to participate in.
Simples. Unless NAMA retains a significant stake in the QIF, we will lose a lot of money.
Sometimes we should allow for the bumbling nature of certain organisations. My suspicion is that the QIF is a hastily thrown together response to the Geoghegan review – ‘look we’re being creative and developing initiatives/new products’.
If so, we need to be wary that NAMA will put itself under pressure to make the launch of the first QIF a ‘success’. Which, in turn, is unlikely to be good for the taxpayer.
In terms of questions, I’d like to see 1.) will all deals (and Offering Circulars/pre-sale information) be publicly available. 2.) will nama be off-risk (i.e. not guarantees, provide no leverage)?
Realisation has dawned on the short planks in NAMA that there is no market in Ireland for single asset sales as there is no liquidity (debt finance) in the country – and other than Barclay’s who are very selective there are no foreign banks willing to land against Irish property assets. Consequently, a bulb lit up over someone’s head, and we have the Irish solution – a QIF….. We’ll sell to ourselves and extend the day job!
With so many feeding at the trough, how do they hope to pay the new suckers a profit? A QIF is only as good as its income producing ability, so the income producing assets get transferred to it and we just get further toxic concentration of non-performing loans within NAMA as the agency spins how well it is running its book off.
My mole tells me that they are asking the agents just for verbal updated valuations on their underlying property assets as they do not want the current valuations recorded. They realise that the values are now seriously below the purchase levels and that recovery of the NAMA purchase price is an ambition that will not be fulfilled. Expect to see more debt for equity swaps and NAMA participation in JVs with purchasers in order to fudge the eventual outcome.
Is this just not another way of NAMA reducing its exposure to the assets?
This time by packaging up loans and maybe property and selling it to investors in the QIF. Might be an easier sale than trying to find individual buyers for individual assets.
Yes this is another fund or agency but the big difference is that private investors will gain or lose based on the change in value of the assets rather than the Irish state.
I thought it was going to be “full steam ahead” once the uncertainty re UORR was sorted…We were assured that.Commercial property would “fly off the shelf”…Hundreds of eager investors waited in the wings ready to pounce once the specter of UORR reform receded?…Surely the sacrifice of all those jobs,shops and retailers was not in vain?
@Margaret
Add to that the reduction in stamp duty from 9% to 2% since 7th December.
Just shows you how effective lobby groups can be at fooling (ooops, influencing) decision makers.
@Brian, the reduction in commercial property stamp duty was from 6% to 2%. As Margaret says, UORR changes were also abandoned. In addition, capital gains tax sweeteners were offered on purchases that were held for several years. But for all of that the SCSI/IPD commercial property index rose by just a measly 0.2% for Q4,2011. It would have fallen 3% had the Budget 2012 changes been made.
But then again, if retailers in particular had been gifted UORR changes, would we see a 10,000+ increase in retail employment or would retailers claim labour costs including the minimum wage, local authority rates, utility costs needed to be addressed before employment could grow? I guess we’ll never know.
http://wp.me/28tG9
some thoughts on qualified investment funds
Regarding update,no additional valuation required if you transfer the loans,more likely outcome is stuff them with a mix of loans,any other path is a minefield.
There,was something in today’s IT along similar lines,from a historical and US perspective.
http://www.irishtimes.com/newspaper/commercialproperty/2012/0215/1224311791003.html
Interesting,timing of article,they appear to do a bit of NAMA work.
http://www.murphymulhall.com/oliviacv.html
Regarding update,Barrett had some interesting views/conspiracy theories that he outlined in his ahm ‘sworn affidavit’ from the ehh People’s Republic of China,that was accepted by the Irish courts,is this precedent setting.Are affidavits sworn in Communist country’s,frequently accepted by Irish courts,what laws would prevail.
After all its only 1.7BILLION that’s owed to Irish taxpayer,not worth his time to swear it Ireland,nah fax the thing in.
@John, where do you think NAMA is going to get €500m of property (at current values) to place in QIFs this year. Remember the receivers act on behalf of all creditors including NAMA but they may decide a sale to a QIF is the best outcome. But €500m? Maybe Richard Barrett isn’t the tinfoil-hat wearing conspiracy theorist after all. But having said that, you’d hope that NAMA hasn’t become a hostage to its QIF plans and will act to maximise income as its first priority regardless of strategies available.
@NWL still don’t fully understand the QIF exit strategy and NAMA,perhaps NAMA will ‘work’ with some of its bigger borrowers,encourage the to use this as an exit vehicle.They are silent on ‘carried interest’ in the QA you linked.
Considering Ronan could not be bothered or was advised against preparing and swearing an affidavit,that leaves us with Barrett’s.No Irish law expert,but its a 1.7BILLION dispute,Irish courts accept these from CHINA!
The board must be driving this hard,resources could be better used passing REIT legislation.
Basically Noonan is an idiot and incompetent or misinformed.
“It is not envisaged that additional due diligence will be required given the substantial amount of information which has already been collated on loans and on the property assets securing them.”
http://debates.oireachtas.ie/dail/2012/02/14/00090.asp