A group of investors in luxury hotel complex The Resort Group (TRG) fear for their nest egg after returns from an offshore investment are not reaching the levels they expected.
Five investors FTAdviser spoke to had hoped for high annual returns from their Cape Verde commercial property but are now losing money as returns are low and fees and charges, including from their self-invested personal pensions (Sipps), are eating into their investments.
Some are also concerned about the liquidity of the investments, saying selling them on for a profit proved tricky.
Founded in 2007 by CEO Rob Jarrett, a former banker and financial consultant at Prudential, the Resort Group owns four luxury resorts in Tortuga, Dunas Beach, Llana and White Sands.
One marketing brochure issued by Kayden Estates, an independent partner which sold the investments to direct investors back in 2008, spoke of 20 per cent annual returns on the apartments.
Referring to “example figures supplied by the developer”, a two bedroom apartment purchased for €146,950 would return a profit of €106,979 in three years, it stated.
A spokesperson for The Resort Group said it had stopped selling properties through Kayden Estates in 2010 and had no record of these figures.
They told FTAdviser: “Whilst we work very closely with our agents to ensure best practice, we are not in control of their sales and marketing approach, due to them being independent businesses.”
TRG itself speaks on its website of 5 to 7 per cent returns and a regular income through its hotel management scheme.
A pensions illustration used by self-invested personal pension (Sipp) provider Rowanmoor from 2013 projected a gross annual income of £4,500 for investor Owen Magowan, who purchased an apartment in 2012 for about £40,000. The projection showed the pension would be worth £106,000 by 2046.
But according to his latest Sipp statement, he received £520 from The Resort Group in tenant rent in the 12 months to April and faced Sipp fees of about £655, writing an overall loss.
Similarly, Andrew Walton, who invested €27,000 in an apartment in Dunas Beach in 2011, claims he has so far made a loss of £1,044.82.
Part of the problem seems to be that the management fee gets deducted after the returns have been calculated.
TRG says rental yields were never guaranteed but they are expected to go up as room occupancy increases.
It also stated the “secondary market for these types of properties in Cape Verde is growing”.
Many of the UK Sipp investors FTAdviser spoke to were sold the investments through Real Sipp, a company owned by now defunct regulated firm C.I.B. Life & Pensions.
TRG said it takes no responsibility for the suitability of the investment for individual investors.
TRG offers a money back agreement to some investors. But FTAdviser understands this is not offered as a standard service, as "all property purchases are negotiated on an individual basis.”
An estate agent who is involved in the local property market but does not want to be named, told FTAdviser the problem was the state of the market. In his view, the initial valuations may have been too high.
He said: “The Resort Group have built everything they said they were going to build and these are good, working resorts."
He said The Resort Group was different to failed overseas property investment company Harlequin, which UK pension investors also backed heavily and where they incurred large losses, because unlike Harlequin it has delivered on its promise to build the properties.
The problem, as he sees it, is that people who invested through their pensions are not getting what they thought they would be getting.
He said: “The TRG issues are more to do with the fact it’s a financial product. When the market is down and people want to suddenly get rid of something, that is hard to sell.”
Glyn Taylor, a solicitor at Anthony Philip James & Co, put the blame on the way the products were marketed, making investors believe they would be getting higher returns on their pensions than they were currently getting.
But he said Sipp providers should never have accepted the investments into their books.
He said: “The Sipp trustee has a specific duty not to accept an underlying asset without taking reasonable steps to ensure they are able to undertake realistic annual valuations.
“If the investment is high risk and illiquid then it shouldn’t be accepted as it is inappropriate for a Sipp investment by a retail customer.”
London & Colonial and Rowanmoor said client suitability was the responsibility of the advisers.
But London & Colonial said it had “undertaken the appropriate due diligence” at the time its clients chose to invest in TRG.
Rowanmoor said it had controlled its intake but was not responsible for delivering a return to investors on the investments they hold, which was separate from the fees it charges.
It said: “TRG was a high-risk, liquidity controlled investment and investor suitability should have accounted for this. This is why we have only a small number of pension holders with these assets.”
The Financial Conduct Authority (FCA) last year wrote to investors in The Resort Group to ask for information on their investments.
The Financial Services Compensation Scheme, meanwhile, has paid out on some TRG claims but not on others.
One of the investors FTAdviser spoke to, Mr Magowan, was awarded £50,000 from the FSCS after bringing a claim against C.I.B. through a claims management company.
But Clare Knight, who was also advised by C.I.B., was told she could not bring a claim while another related claim against her Sipp provider London & Colonial was pending with the Pension Ombudsman.
Al Rush, principal at Echelon Wealthcare, called on Sipp providers to take responsibility for the investments they allow on their books.
He said: "Some Sipp providers have for far too long adopted a see no evil, hear no evil approach to what investments are allowed in their products.
"Advisers might not like it, but we have to accept that to secure the retirement outcomes of the few, there may have to be a penalty for the majority. If that means a Sipp provider glancing over a recommendation and giving it a sense check, then so be it."
carmen.reichman@ft.com
