"Equititrust is supportive of the right for one to express an opinion but is concerned when posts such as those by Kostag and Olman contain numerous and repeated errors and conclusions that a reasonable person could not possible reach".
It's nice to see a response from the firm - the lack of communication to investors otherwise has been an unsettling component of operations recently.
I take exception to the inclusion of my post in the above statement by the CEO, David Kennedy. My statement was drawn from information published in the Annual Financial Report for 2010, and nothing in the CEO's reply addresses the issue raised of the Return on Subordinated Investment.
The relevant point raised in my post:
"In addition, the RE took $10,531,734 as a return on the RE's subordinated investment, in accordance with priority 4 above. This was in one year, and amounts to 1/4 of the subordinated investment - a return of 25%. Not bad, when you consider the rates being paid to ordinary investors of around 8%.
What I find disturbing is that the RE has classified the Fund as a "non-liquid" fund, and on this basis they have frozen redemptions. If the Fund is really "non-liquid", where did they find the 10.5 million to pay themselves? Where does the capital invested by the ordinary investors rank in priority as far as redemptions are concerned?
As I see it, at 25% return, they only have to hang in there for 4 years and they've made their capital back, and the subordinated status turns into a joke at the investors' expense. All that is required is to hold off redemptions for another couple of years while continuing to rake off the "distribution of remaining surplus to be paid to the RE as a return on RE's subordinated units.""
In the previous year's 2009 Financial Report, $9.9 million was stated as the Return on Subordinated Investment. Again, this is a figure which roughly equates to a 25% return on the Subordinated Investment. Since the freeze on redemptions in October 2008 Equititrust has gained a 50% return in this manner. The $20 million involved over the two years would have gone a long way towards easing the backlog of investors redemptions.
In 2007 and 2008 in the Financial Reports the Return on Subordinated Investment was called "Interest Warranty Fees", and for those two years alone totalled around $40 million, so the company has already taken the full value of the Subordinated Investment back. I haven't gone back further in history to assess the total size of this particular pot of gold to Equititrust, but enough has been said to show that they are not suffering from lack of income, while investors remain with frozen redemptions.
The company reply does not address the facts stated in my post, or refute the conclusion reached, which in the absence of any clarifying remarks is a conclusion any reasonable person may expect to reach. The avoidance of this issue in the company reply adds to my concerns.