Wealth advisers in spotlight over Blue Sky deals involving loans for apartments

WEALTH advisers telling clients about Blue Sky investments are taking up potentially lucrative deals involving apartments developed by the Brisbane-based fund manager.

Rob Shand, managing director of Brisbane based Blue Sky Alternative Investments. Picture: Lyndon Mechielsen

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WEALTH advisers telling clients about Blue Sky investments are taking up potentially lucrative deals involving apartments developed by the Brisbane-based fund manager.

The deals involve advisers lending money as mezzanine finance — a riskier form of loans — in exchange for apartments. These loans help the completion of apartment projects backed by Blue Sky Alternative Investments.

The move represents a double-edged sword: the advisers themselves are staking their own wealth on investments in possibly the same projects as clients, but it could create the perception of a potential conflict of interest.

It comes with Blue Sky’s share price toppling from $11.43 to under $4 in a month, after California-based short-seller Glaucus in March released a withering critique of Blue Sky’s disclosure and figures.

The Brisbane-based fund manager rejected Glaucus’s claims but this week still unveiled new detail, including that 50 per cent, or $2 billion, of its assets under management are in real estate.

Blue Sky can finance developments via equity, which investors provide to funds; senior debt, provided by established lenders; and a form of mezzanine finance, in which a person or private company makes a loan and earns an apartment in return.

“The differential between what you invest in on day one, and what the apartment was worth, that’s the return,” Blue Sky managing director Rob Shand said of the mezzanine finance.

According to property industry sources, such a style of mezzanine financing is uncommon in large projects. Blue Sky said 10 per cent to 15 per cent of apartments in a project can be obtained this way, and this was fully disclosed in investment documents.

‘SAME TERMS AS EVERYONE ELSE’

Mr Shand said some advisers partook in such loans on Blue Sky projects on the “same terms as everyone else”. Only “wholesale” investors — such as people who have net assets of at least $2.5 million — can participate.

One adviser from wealth management firm Morgans, whose corporate arm is involved in fundraising for Blue Sky, is a shareholder and director of a private family company involved in at least three such deals.

That family company in 2017 acquired apartments valued at more than $490,000 each in Blue Sky Brisbane projects: the 125-apartment The Duke building in Kangaroo Point, the 53-apartment Stone and Co development in Greenslopes and 65-apartment Bastion building in Windsor.

The Duke, Kangaroo Point.

Land documents state the company, as trustee for family trusts, in each case provided an “advance under a loan agreement”.

The adviser refused multiple times to detail what he had disclosed to clients, hanging up twice on The Courier-Mail. There were “no wrongdoings in my domain, as everything is aboveboard and compliant,” he said.

“I’m not aware of any conflict (of interest) at all really ‘cause they (the loan deals) are just available to any investors that meet the sophisticated investor status to invest in their funds,” he said.

Asked if he had discussed Blue Sky stock to clients, he said: “We’re stock brokers, so it’s a listed company, so obviously we do talk about listed stocks, yeah.”

Blue Sky said there was no obligation on itself to identify “specific investors in apartment transfers” on investment documentation and any issues about disclosing a potential conflict of interest for advisers was a question for the advisers.

“But in Blue Sky’s experience many investors like to see the alignment between an adviser and investors’ portfolios,” the company said.

Blue Sky also said the use of loan-for-apartment deals would not warp the values of other apartments in a project.

“Other apartments are sold in the open market by third-party real estate agents seeking to maximise the value of apartments sold,” it said.

Email: Liam Walsh