Harlequin investors have been left confused over the true value of their investment, after one SIPP (Self-Invested Personal Pension) provider took the decision to value investments in the beleaguered property firm at just £1.
A letter sent by the Lifetime SIPP Company to investors, seen by Investment Sense, says: “As you may be aware the underlying assets purchased with monies raised by investors through Harlequin Property were overseas property developments. Some of the developments have not been completed on time and it has become very difficult to provide an accurate valuation of the underlying property. Until such time as the investments are realised or a professional valuation is available the value of your Harlequin Property investment will be shown as £1 in future valuations and our Statutory Money Purchase Illustrations. Please note we are adopting this approach as an accurate valuation of the assets is not currently available.”
The letter goes on to say: “You may have received a letter from Eleven Capital Limited in which they indicate that they consider that if the Harlequin group entered formal insolvency procedure “…investors may recieve as little as 10p in the pound…”. We have no way of verifying that statement and accordingly, following discussions with the FCA, we are adopting what we consider to be a more prudent method of valuing Harlequin investment until further clarity in the form of a professional independent valuation of the investment can be obtained.”
As we revealed last week, Eleven Capital are no longer working with Harlequin on the restructure of the business. Click here to read the full story.
The move by the Lifetime SIPP Company to effectively write down the value of the investments has been heavily criticised. It has also left many investors concerned about the true value of their investment, just as a further round of investor meetings were announced for early September.
It was reported in FTAdviser the FCA had indeed told the Lifetime SIPP Company to write to clients. However, the regulator denied instructing the Lifetime SIPP Company to value the investments at £1.
A spokesperson for Harlequin said: “The overseas companies have not entered into any insolvency procedure. Therefore any valuation based upon Harlequin Property’s administration process is both arbitrary and highly questionable.”
Speaking to Investment Sense, Gareth Fatchett of Regulatory Legal, who act for hundreds of Harlequin investors, said: “The move by the Lifetime SIPP Company has hardly come as a surprise and there is no doubt other SIPP providers will come to the same conclusion in due course.”
Fatchett continued: “However, the news will understandably worry SIPP investors, as it makes the loss look ‘real’. It certainly isn’t helpful in terms of investor confidence.”
Capital adequacy benefits
However, another possible explanation for the decision to write down the value of the investments emerged yesterday.
The FCA is due to introduce new rules for SIPP providers, governing the amount of capital each firm needs to hold. The initial proposals, released last year, indicated the regulator was planning to link the amount of money held by a SIPP provider in ‘non-standard assets’, of which Harlequin would be one example, to the amount of capital required to be held in reserve. Some leading SIPP experts have suggested the decision by the Lifetime SIPP Company, to value Harlequin investments at just £1, would benefit the SIPP provider as it would lead to a lower capital adequacy requirement.
John Fox, Managing Director, Liberty SIPP, commented: “If ever an example were needed of how the road to hell is paved with good intentions, then this is it. I wholeheartedly agree with Martin Tilley’s assessment of the matter (in FTAdviser). Writing down the book value of Harlequin investments is arguably a prudent move but the very process of doing so exposes a major flaw within the capital adequacy proposals as they stand.
“By this perverted logic, the weaker a SIPP becomes, the less it needs to hold in reserve. You could argue that the same perverted logic applies to SIPP providers that take a commission on current account interest. Their reserves for capital adequacy purposes are strong but are ironically built on very weak foundations.
Fox continued: “I feel that it would be a lot easier to understand and police capital adequacy if there were a flat rate of required capital holding and not just the figures quoted of £20-£50k. The onus is on all SIPP providers to give peace of mind to both their customers and the regulator and in my opinion we should be talking about capital reserves in the realms of £250k. This would immediately prevent companies from fudging the figures and misrepresenting their financial position.”
“SIPP providers that went nowhere near Harlequin, including ourselves, have effectively been put at a disadvantage.”
Are you a Harlequin Property investor?
If you are a Harlequin Property investor you will naturally be concerned about the recent developments. The investors we have spoken to have had mixed emotions, however all have wanted to take some form of action.
We would recommend that Harlequin investors continue to monitor the situation whilst completing the Harlequin Property Serious Fraud Office questionnaire , which can be found by clicking here and also visit the website set up by Regulatory Legal: www.harlequininvestorgroup.co.uk/ for more news.