Tag Archives: Patrick Cairns

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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Belvedere allegations: Money in SA unit trusts is safe

20 Apr

Author: Patrick Cairns

Publications: MoneyWeb

Date Published: 14 April 2015

CAPE TOWN – The allegations that local fund manager Cobus Kellerman could be involved in a $16 billion (R200 billion) Ponzi scheme through the Mauritian-domiciled Belvedere Management Limited has caused a lot of consternation in South Africa. Many investors have been worried that money they put into unit trusts managed by Kellerman could be at risk.

Kellerman established Clarus Capital in 2009. Until July last year, Clarus managed a number of funds administered by MET Collective Investments, including the Clarus MET Equity Value Fund and the Clarus Optimal Fund.

These funds, although they still carry the Clarus branding, are now managed by Contego Asset Management. Contego is still awaiting approval from the Financial Services Board (FSB) to change their names.

Contego took over management of these funds after signing a new investment management agreement with MET Collective Investments in 2014. Since July last year, therefore, Kellerman has not been involved in these funds in any capacity.

However, even when he was managing these funds, there was no opportunity for him to take money out of them. The South African unit trust market is highly regulated and there are always custodians that stand between the investors and the fund managers to prevent any kind of fraudulent activity.

“In the history of unit trusts in South Africa there has never been any evidence of a fraudulent act,” says JC Louw, the Asset Management CEO at Contego. “Kellerman could not have touched the money in these funds.”

Every unit trust has an appointed administrator and fund trustee. These are reflected on the fund fact sheets.

The administrator is responsible for verifying the assets held in the fund, while the trustee is a bank which holds those assets in trust. In effect, the fund manager doesn’t actually handle any money. They run the fund off a spreadsheet.

“We can’t withdraw money and the trustee bank will not pay out to a third party,” Louw says. “The custodian will only pay out to a FICA verified bank account supplied by the investor.”

It is also not possible for a unit trust to invest in any unlisted instruments, so a manager cannot divert funds into an obscure holding that they can then raid. The assets held by the fund must always be verifiable by the administrator.

“So there is no evidence whatsoever of money that has gone missing and no evidence of irregularities in South African funds whatsoever,” Louw says. “South African unit trusts are safe.”

The scale of the allegations

The allegations about Kellerman and his partners at Belvedere, Irishman David Cosgrove and Mauritian accountant Kenneth Maillard were first made in an article on OffshoreAlert. It claimed that Belvedere “appears to be one of the biggest criminal financial enterprises in history”.

It based this on Belvedere’s submission to the Mauritian Financial Services Commission that it has $16 billion (R200 billion) of assets under administration, management and advisory. OffshoreAlert suggested that all of this is at risk.

The amount of money in question is huge. It almost matches all of the assets under management in Allan Gray’s South African unit trusts, and is almost twice as much as that managed by Nedgroup Investments in its suite of unit trusts.

However, Moneyweb made enquiries at a number of large local financial advisers and none had heard of Belvedere before the rumours broke. Nor did they have any knowledge of RDL Management – the investment management and advisory arm of Belvedere of which Kellerman is the 50% owner.

This is in rather stark contrast to Herman Pretorius’s R3.1 billion RVAF Ponzi, which was widely known when he committed suicide.

This may be an indication that there is not a lot of South African money with Belvedere. It also raises questions about the allegations in general.

It takes a long time to accumulate an asset pool of that size, and Belvedere is reported to have over 120 funds. So far, however, the only claim that anybody has not been able to recover money from any of them are those from the deVere Group.

deVere is an independent financial advisory group, and seems to be the primary source of information supplied to OffshoreAlert. It claims that clients lost money in one of the fund’s administered by Belvedere: the Strategic Growth Fund.

However, no other investors appear to have come forward to claim that any money invested in any of Belvedere’s other vehicles is unrecoverable. That doesn’t mean there isn’t impropriety going on, but it does raise questions about what evidence really exists.

Kellerman was not available for comment at the time of publication.