Saturday 21 September 2019

Investors' fury as forestry fund sale ends hope of hitting return targets

Trevor McHugh, right, with his business partner Paul Brosnan
Trevor McHugh, right, with his business partner Paul Brosnan

Charlie Weston Personal Finance Editor

A DIRECTOR of a portfolio of forestry funds has denied shareholders were misled after a sale of 18 funds crystallised returns at a fraction of what was held out to investors who committed cash for up to 20 years.

Some 12,400 investors are impacted by the sale of the Irish Forestry Funds portfolios. The investors who put money into the funds were outlined returns of up to 14pc a year compounded, but have ended up realising a fraction of that.

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People who bought the shares have expressed anger and frustration at the outcome.

Some 10,000 acres of timber were planted in the 18 different funds, which have now been wound up, with the assets sold to Axa Investment Managers.

One of the worst-performing was the Third Forestry Fund, which was launched in 1998.

It was to mature in 30 years, with tax-free returns. Shares in that fund were sold for IR£500 (€635) each.

The prospectus indicated a potential return of IR£28,500 tax-free when the fund matured, a copy of which has been seen by the Irish Independent.

But the fund has been liquidated along with the other 17, and sold to Axa.

Shareholders in the Third Forestry Fund got cheques this week for just €1,313 for each share. This is almost €35,000 less than the return outlined in the prospectus.

The prospectus stated: "Based on the assumptions set out on page 9 of this prospectus, a one-off investment of £500 per share would result in a distribution in excess of £28,500 tax-free per share when the crop is harvested in 30 years' time."

It went on to say this represented a compound annual rate of return of 14.4pc a year. But the compound annual return ended up being 3.5pc.

Small business owner Ronan McGrath, who is based in north Co Dublin, said he bought into the fund and was disappointed at the return, as well as the fact that the fund was liquidated after 21 years, instead of running for 30 years as promised.

He said he was not given an indication by the company that the funds were about to be sold off, ahead of their maturity.

"The returns they were claiming were mad but I thought that even if I got half of that, it would not be a bad bet. I am disappointed they did not see it out for the full 30 years," he added.

And project manager with a Dublin pharmaceutical firm, James O'Neill, who lives in Co Wexford, said he bought into one of the funds to provide for his children.

He said: "I am astounded they have not lived up to even half of what they promised."

Director of the Irish Forestry Funds, Trevor McHugh, denied investors were misled. "I don't believe the funds were mis-sold," he said.

He added that the company got a "compelling" offer for the funds and sold them to Axa, a move that locked in profits for the shareholders.

Mr McHugh acknowledged that the returns were below expectations, but said there was no way of knowing back in the 1990s that so many factors would depress returns.

He blamed a glut of timber in Europe, low interest rates, the threat of a trade war between the US and China, the impact of the spruce bark beetle, and droughts.

Brexit is also a huge problem for timber growers, as the majority of Irish wood is exported to Europe and there is a surplus of timber in that market. He said: "Europe is awash with timber at the moment."

Mr McHugh said he was aware of complaints and the phone line in his office had to be shut down due to the high volume of calls.

Asked why many of the funds were not managed out to maturity, he said there was no prospect of a major improvement in the price of wood.

"The sector is facing headwinds which could not have been foreseen in the last 30 years," he added.

Mr McHugh claimed investors made annual returns of between 3pc and 5pc a year in the 18 funds, where shareholders had invested for between six and 20 years.

Asked if shareholders deserved an apology, he said: "The prospectus [for the Third Forestry Fund] was built on assumptions about where things were in 1997.

"Since then, we have had the dotcom bubble, the recession, ultra-low inflation, and ECB negative interest rates. We could not have expected to have forecast or projected any of that in the 1990s."

He admitted that he and fellow director Paul Brosnan run a company called Veon which will manage the forestry assets sold to Axa, but insisted this would only mean them getting a small fee for woodland management.

18 funds liquidated and the assets sold off to Axa

Irish Independent

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