News analysis: Cru goes into ‘fire fighting’ mode

Cru is petitioning advisers in the hope of preventing Capita from selling off assets in its suspended range of funds at knock-down prices to meet growing redemption requests.

Avoiding a ‘fire sale’ is chief among the concerns of advisers with £400 million of client money in the suspended Arch Cru range of funds.

The funds, which invest in private equity and private finance, were suspended by administrators Capita on 13 March in response to a lack of liquidity to deal with redemptions.

Advisers fear that these assets could be sold off quickly at massive discounts in order to satisfy these redemptions.

Rallying adviser support

Cru Investment Management, which markets the funds, is trying to marshal adviser support with an online petition it intends to present to fund managers Arch, Capita and the Financial Services Authority, urging against this.

Cru has admitted the future of the fund is out of its hands, and lies with Arch, Capita and the FSA. But its petition highlights one potential option for the funds. Cru has asked advisers to outline what proportion of client funds they would like to see placed in a ‘liquidisation’ share class, where assets would be realised within three to six months. It also asks how much client money they would like to see placed in a ‘long-term investment share class’ that would remain in the fund. If enough funds were committed to the ‘long-term’ share class, the fund administrators could limit the amount of assets it needs to sell off.

It is understood that 142 advisers have responded to the petition. A total of £90.6 million of the £101 million of funds they claim to hold was pledged for the long-term share class, according to sources close to the company.

Cru is also understood to be setting up an investor committee, made up of eight advisers, who will lobby on the future for the funds. Arch Financial Products is likely to be present at the first meeting, to be held on 31 March, and Capita has been invited.

Veronica Mann, director of Trigon Associates, which has client money in the Investment Portfolio fund, said that the majority of clients were still committed to staying in it for the long term. ‘A fire sale is the worst solution for everybody,’ she said. Andrew Zamorski of HPZ3 in Buckinghamshire and Richard Gough of Castle Court Consulting in Cardiff have also urged against a fire sale.

Tried and tested

 Creating a new share class was the solution adopted by Brandeaux earlier this month when it re-opened its student accommodation fund after a three-month suspension imposed as a result of an increased level of redemption requests. The new share class brought the notice period for redemptions up from seven working days to six months. This may be a possible route open to Arch Cru as it would reduce the possibility of redemption requests causing problems due to the illiquidity of the funds’ private equity and private finance holdings.