Belvedere: A closer look at Trinity

14 May

Author: Patrick Cairns

Publications: MoneyWeb

Date Published: 14 May 2015

CAPE TOWN – The allegations against Belvedere were first made in OffshoreAlert back in early March. The Miami-based publication claimed to have uncovered “one of the biggest criminal financial enterprises in history”.

There were suggestions that billions of dollars were at risk in what was a web of fraudulent activity.

Despite the size of the alleged scam, a peculiarity of the story is that there has been very little in the way of anyone coming forward to claim that their money is missing. The deVere Group raised the initial concerns about the Strategic Growth Fund, which was the focus of the recent actions by the Guernsey Financial Services Commission (FSC). It is worried about a total £30 million that it has not yet been able to recover from the fund.

No other investors have yet publicly come forward to state that they are worried about missing funds. The scale of what may or may not be compromised therefore remains a point of conjecture.

Much of the speculation around Belvedere has also suggested that everything with any connection to the group must be fraudulent. However, there are investment vehicles associated to Belvedere that are verifiably legitimate, and it is important not to overlook those details.

This is the case with the two sub-funds housed under the Trinity Global Fund in Guernsey. To understand this, it is necessary for some context.

Towards the end of April, the Guernsey FSC successfully applied to have three funds managed by Lancelot Management – the Global Mutual Fund PCC, Universal Mutual Fund ICC and Worldwide Mutual Fund PCC – placed under administration.

The FSC also applied to place a fourth fund, the Trinity Global Fund, under administration. That application was however adjourned to a later date, and has since been adjourned again.

Why is Trinity different?

Trinity is distinct from the other Lancelot-managed funds in Guernsey in that it is a unit trust, rather than a hedge fund vehicle. It currently houses only two sub-funds, the Armstrong Global Diversified Fund and the NeFG Global Diversified Fund.

There are strong connections to South Africa here: NeFG is a local fund manager and the Armstrong Fund is the offshore vehicle into which the MET Global Diversified Feeder Fund invests.

A ‘consent order’ was obtained in court that essentially requires Trinity’s trustee bank, the Royal Bank of Canada, to impose strict conditions on any transactions within these funds. This will stand until May 29, when the application to place Trinity under administration is now set to be heard.

Moneyweb has established that both the Armstrong and NeFG funds have long-only mandates and may only invest in listed securities. In both cases the underlying investments within these cells are exclusively in funds managed by South African asset managers – the likes of Coronation, Sanlam, Investec, Prescient and Stanlib.

Given what has taken place in Guernsey, certain reports have once again questioned whether the money in these funds is safe. The Head of Distribution and Client Services at MET Collective Investments, Kevin Hinton, stated some time ago that he was confident that the assets in the MET Global Diversified Fund could be validated, and he reiterated as much again to Moneyweb this week.

“I still stand by that comment,” Hinton said. “We’ve gone as far as to check the unit registers of the management companies themselves. When we originally got a document from the administrator Lumiere indicating what the underlying assets were, we went to each of those asset managers – the likes of Prescient, Investec and Stanlib – and validated that they were holding those units in their funds by that nominee vehicle.”

As such, he is satisfied that no investor money is compromised.

In the case of the NeFG, as reported towards the end of April, Moneyweb has seen copies of the fund valuation and portfolio valuations confirming its assets. It is invested in only three underlying funds – the RECM Global Fund, Coronation Global Managed Fund, and PSG International Global Flexible Fund – and the assets in each are identifiable and valid.

Moneyweb understands that the NeFG fund is in the process of cashing out its assets as the reputational risk has become too much. It is looking to relocate to another jurisdiction.

Guernsey

These matters taking place in the Royal Court of Guernsey have been the focus of the Belvedere story over the last few weeks. The application to the court to place the Lancelot funds under administration was accompanied by an affidavit sworn by Paul Yabsley, a senior analyst in the enforcement division of the Guernsey FSC that contained the first concrete details of suspicious trades. These had taken place within the Strategic Growth Fund cells of the Global Mutual Fund.

This is the fund about which deVere had expressed its concern.

The trades were a series of investments into the underlying cells of two Mauritius-domiciled funds: Two Seasons and Four Elements. These funds were both administered by Belvedere Management and managed by RDL Management.

The FSC was particularly concerned about what it termed “significant and systemic conflicts of interest” in these transactions, as Cobus Kellermann and David Cosgrove owned or managed entities involved at almost every level. It also submitted to the court that the financial positions which resulted may not have been valued correctly.

The four specific transactions in question were to the value of $10 million, $1 million, $1.5 million and $14 million. The Guernsey FSC also questioned the valuation of a property in Stellenbosch that was bought by one of the Mauritian funds for R28.5 million and sold two years later to another for R72 million.

The affidavit further questioned the sale and transfer of R14 million worth of shares in JSE-listed BKOne between funds linked to Kellermann. The transaction was instigated the day before Herman Pretorius murdered Basilues CEO Julian Williams and then committed suicide.

None of the other cells in either the Global Mutual Fund or any of the other funds placed under administration were specifically mentioned in the affidavit. However the FSC did state its belief that the conflicts of interest it uncovered could extend “to a number of other Managed Funds which have advisers with similar ownerships or investments into Four Elements and Two Seasons.”

It therefore requested that all the funds be placed under administration to allow for proper investigation into whether there was any contagion and to protect investors in the case of redemptions, since there is a risk that net asset values may be incorrect.

The specifics

What the affidavit also highlighted was the need to deal in specifics with regards to the allegations against Belvedere. Suspicious activity has been uncovered, and that must be dealt with on its merits.

The question of whether there has been contagion must be followed up. As that happens, more details may emerge.

It is, however, evident that not everything associated with Belvedere is fraudulent, or even suspicious. Within the Belvedere hive there are genuine funds running demonstrably valid mandates with assets that can be verified. One of the issues the regulators are facing, therefore, is the onerous task of separating the good from the bad.

The problem for investors is that until the regulators’ work is complete, they can’t know the difference. And unfortunately for any fund associated with Belvedere, that may be a death sentence.

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