Adviser payments could rise as Arch Cru fund values plummet
Arch Cru funds post losses in annual accounts, posing threat to consumer redress scheme set up by FSA.
Advisers could be forced to stump up more money to compensate Arch Cru investors, after the failed funds’ annual report revealed losses of more than £22m.
According to the annual reports and accounts for the six Arch Cru funds, the net asset value (NAV) of each fund fell by at least a third, with the biggest fund - the CF Arch Cru Investment Portfolio - seeing its NAV plummet by 47.5 per cent between March 31 2011 and March 31 2012 to £21m.
In the same period, the funds paid out £41.7m to investors as the administrators wound up the assets of the portfolios.
This means roughly £22.8m was written off the funds’ valuations by administrators Spearpoint in the 12 months to March 31 2012.
In April this year, the FSA announced it was planning a section 404 redress scheme, funded by IFAs who sold Arch Cru, to compensate investors. At the time, the regulator calculated losses from the funds to be roughly £136.7m, based on the funds’ March 2011 NAV. The FSA said it aimed to raise £110m from the scheme.
Aifa has called the redress scheme “inappropriate” and “damaging”, as the cost of funding it could push huge numbers of IFA firms into bankruptcy - heaping further costs onto the FSCS.
The FSA is expected to publish its final decision on the section 404 scheme in November.
In its report, authorised corporate director Capita said there was still “uncertainty” regarding how big the losses on the funds will eventually be. The assets in the Guernsey-domiciled cells, which make up the majority of the funds’ investments, “are not capable of being reliably valued on a ‘fair value’ basis”, Capita said.
Since the funds’ suspension in March 2009, investors have received six payouts from four of the funds, and five payouts from the Specialist Portfolio and Investment Portfolio funds, according to the annual report.
The latest payment in July 2012 saw £1.6m returned to investors from the Finance, Balanced, Income and Global Growth funds. Capita said it expected a further payout in December 2012, but this was “dependent on the progress made by [administrators] Spearpoint... in realising the underlying assets of the cells”.
The boards of the Guernsey cells, now managed by Guernsey-based Spearpoint, are currently pursuing separate court cases in London against Arch Financial Products and its chief executive Robin Farrell. Both Mr Farrell and Arch have denied all charges in both cases.