The US hedge fund which has given Keydata a brief reprieve by plugging a short-term funding gap is "no white knight", warns an IFA involved in the deal.
Hedge fund CarVal has stumped up £3.5m to stave off the controlled liquidation of Keydata. This was set to begin yesterday with the first wave of lapsed policies within some Keydata investments, if funding had not been found.
The US company is currently the sole group to be undergoing due diligence with Lifemark, the Luxemburg-based company Keydata founder Stewart Ford set up to provide some Keydata products to investors through advisers.
It now has a six week "exclusivity period" in which it is the only company allowed to put together a longer-term funding proposal for Keydata. This is likely to involve investors recouping around 30% up front followed by a percentage income over ten to 14 years.
But director at IFA Vintage Financial Geoff Hartnell, who has clients' money in Keydata, warns CarVal is no knight in shining armour, and its first priority would be to take its "considerable" fee before paying out investors.
Some estimates suggest this could be as much as 20% return on investment annually to reflect its risks.
"CarVal is no white knight, and investors shouldn't expect one. Their best white knight is the Financial Services Compensation Scheme and they don't wear too much armour at the moment."
However, he says it is important not to underestimate the importance of the cash injection, and CarVal's long term offer is better than an SLS-style liquidation.
"But it is far from ideal to have clients asking me every year for 14 years if they can definitely spend money for that year."
A bondholder meeting will be called in six weeks to review CarVal's proposal. It will need support from 75% of investors to get approval.
Hartnell says advisers will need to set aside a significant amount of time to research the offering.
"IFAs will need lots of information on what is set to be a complex deal and are likely to find it difficult to understand what is being offered to them."
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