independent

Thursday 17 April 2014

Aviva to pay 80,000 property fund investors €25m in compensation

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AROUND 80,000 customers of investment giant Aviva will be refunded up to €100,000 after a property fund it set up made huge losses.

It is the first time a property fund in this country has had to make mass compensation payments to policy holders.

It raises the prospect of other investment companies being forced to refund customers.

Payments, expected to be issued in December and totalling around €25m, will range from €5 to €100,000, the Irish Independent has learned.

Concerns over a massive overdraft built up by the fund has forced Aviva to question how it was run and refund policy holders.

A decision was made to keep borrowing money to pay off those selling shares rather than selling properties within the fund. This magnified the fund's losses and exposed policyholders to even greater falls in value.

The €89m Aviva Irish Property Fund invested in Irish commercial property, but has lost two-thirds of its value since the the market peak in 2007. At one stage it was worth €414m.

Someone who invested €10,000 in 2007 would be left with just €4,000 today, according to Aviva's own figures.

In 2006, the property fund bought AIB Bankcentre in Ballsbridge, Dublin, for €177m.

This prompted a flood of investors to pile into the fund. At one stage 110,000 retail investors were buying in.

AIB Bankcentre was sold earlier this year for €77m.

The fund has made an annual loss of 17.2pc when looked at over the last five years.

Problems with the fund were sparked by the collapse in property values in 2007. There was a rush of investors who wanted to sell and get out.

A decision was made in 2008 to take out a bank overdraft to pay off those selling shares in the fund, rather than selling the properties within the fund.

Aviva's Sean Egan said there was a fear that shedding properties at fire-sale prices would have left nothing for those who decided to remain in it.

At one stage the bank borrowings went as high as €35m, an internal Aviva document shows. Dated last March, it states that if the fund did not borrow the money to pay off those getting out "the fund price now would be around 18pc higher".

A statement from Aviva said the overdraft for the fund, which was between €20m and €35m at various times, had "inadvertently disadvantaged some policy holders".

The firm will now readjust all policies to calculate how the fund would have performed if no borrowings had been taken on and properties were sold instead to fund withdrawals.

Other property funds are likely to come under pressure to compensate policy holders.

A spokesman for the Central Bank said: "Aviva Life and Pensions (Ireland) Limited previously advised the Central Bank of an error on which restitution will be made to customers by the end of December 2012."

Aviva has set up a helpline on 1850 282930.

Irish Independent

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