Real estate fund manager said his ads could mislead investors

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Paul Gregory, director of investment management for the FMA, said Du Val's advertising was likely to mislead investors.

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Paul Gregory, director of investment management for the FMA, said Du Val’s advertising was likely to mislead investors.

An Auckland-based mortgage fund manager was ordered to remove advertising that was likely to mislead investors into believing real estate development was low risk.

Financial Markets Authority Te Mana Tātai Hokohoko (FMA) has asked real estate development and investment firm Du Val to remove advertising for its mortgage fund limited partnership.

The ad claimed that investors would get “the best of both worlds” with high returns and high security, the FMA said.

He also falsely claimed that there were no fees associated with the fund, the FMA said.

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Owen Culliney, director of Du Val Capital Partners, said the group disagreed with the FMA’s analysis of how its investment funds might be marketed, but made the changes required by the regulator.

This would challenge the FMA’s findings in court, he said.

The FMA said the Du Val ad violated the “fair use” provisions of the Financial Markets Conduct Act because it made it seem like investing in a property development fund was low risk .

“In fact, real estate development, including the associated financing, is inherently risky,” said Paul Gregory, director of investment management for the FMA.

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In his ad, Du Val compared his fund to bank term deposits but without a balanced view of the risks, he said.

While Du Val claimed there were “no fees” associated with his mortgage fund, Gregory said the manager kept any profit on development projects above the return he paid investors. .

The FMA concluded that Du Val receiving 100 percent of all profits above the 10 percent fixed yield to investors was in fact a performance-based commission, and Du Val was not transparent about this. .

The ad was on Du Val’s website and on social media.

“The FMA initially raised their concerns with Du Val and the company has taken steps to modify or remove its advertising material,” said Gregory.

But, he said, Du Val only partially addressed the FMA’s concerns.

The FMA has now issued a “direction order” demanding that Du Val stop making claims that could mislead or deceive investors, and stop comparing his investments to term deposits.

Gregory said Du Val sold his investments to people he considered “wholesale investors”.

These are investors who are seen as very experienced and well-resourced individuals and companies, able to understand complex investments, and who enjoy a lower level of regulatory protection under the law.

The Lakewood Plaza in Auckland was developed by Du Val Group.

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The Lakewood Plaza in Auckland was developed by Du Val Group.

Gregory said: “This case was particularly troubling as Du Val appeared to use social media and other online channels to target less experienced investors.

“Firms making wholesale investment offers must comply with fair use provisions, and in particular, must not mislead or deceive potential investors,” he said.

But Culliney said, “We fundamentally disagree with the FMA’s analysis of how wholesale investment funds can be marketed, particularly through social media and other digital channels for the market. advertising.

“The main objection from the FMA appears to be that people who are not experienced wholesale investors may have seen the Du Val Group’s social media advertisement and may have misunderstood the potential investment risk,” said Culliney.

But, he said, Du Val had strong processes in place to ensure that investors have the in-depth information they need to make informed investment decisions before investing.

Gregory said the regulator is monitoring how the investment industry uses the wholesale exclusion.

“Less experienced investors are increasingly interested in different types of offers, mainly because of the low yields on term deposits and other low risk investments with which they had previously obtained satisfactory returns,” a- he declared.

“We are increasingly concerned with the dissemination of wholesale offers in mainstream advertising, particularly through social media, where the notion that highly experienced investors are the target market becomes questionable,” he said. .


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