Investors sue AIB over property fund bet on Japanese market
Published 21/11/2012 | 05:00
AIB is being sued by a number of investors who bought into a property fund that was a bet on the Japanese market, the Irish Independent has learned.
Losses were heavily magnified for investors who borrowed to invest in the fund, particularly those who borrowed in yen.
Some €128m was invested in the AIB Alpha Japan Property Fund by Irish investors when it was launched in 2008. The aim was to buy Japanese properties, mainly in the Tokyo area.
The minimum investment was $200,000 per investor, which works out at around €156,000 at today's exchange rate. Many investment experts consider borrowing to invest a bad idea.
According to investors who borrowed in yen, not all the money raised was used to buy property, with excess cash then converted back into euro.
This has left those who borrowed to invest in the fund with loans that are in yen.
One investor said yesterday: "This immediately defeated the 'hedge' that had been advised, leaving borrowers exposed. The yen gained in strength, leaving those borrowers exposed."
The investor said that the currency loss from converting the cash in the fund from yen into euro meant that many investors were now facing an additional loss of €60,000 on every €100,000 initially borrowed.
"Many investors invested several hundreds of thousands of euros each," he said.
Some 30 investors in the AIB Alpha Japan Property Fund have now instructed Cork-based legal firm Michael Powell Solicitors, with a legal action planned.
The investors are claiming they were mis-sold the investment. They allege that AIB Private Banking, which prompted the fund, encouraged them to borrow to invest, and claim that the move to hedge the currency risk magnified the losses.
AIB said in a statement: "From the outset, the fund was clearly highlighted in the relevant documentation as being a high-risk investment. The terms and conditions of the fund, including the associated risks of the fund, were outlined in the information memorandum.
"Customers chose to finance their investment in a number of ways – either borrowing in euro, yen or using personal funds. It was at the discretion of each investor whether to borrow to participate in the fund."
The spokeswoman added that despite the difficult economic environment, globally and in Japan, the fund has maintained a significant proportion of its original value.
The case comes after the ACC Bank Solid World legal action was settled last week.
The Dutch-owned bank has settled with 500 investors who borrowed to invest in the bonds.
The Solid World bonds required a minimum investment of €100,000, which was tied up for six years. Investors suffered heavy losses after the bonds failed to generate sufficient returns to pay the interest on the borrowings. Anyone who borrowed €500,000 would have paid €120,000 in interest alone over six years.