Belvedere update: Guernsey FSC places three funds into administration

In a move to protect investors.

CAPE TOWN – The Guernsey Financial Services Commission (FSC) on Friday successfully applied to place three fund vehicles with ties to Belvedere Management under administration. The Guernsey court granted the application to place the Global Mutual Fund PCC Limited, Worldwide Mutual Fund PCC Limited and Universal Mutual Fund Limited under the care of an independent administrator.

The three fund companies are all managed by Lancelot Management; a Guernsey registered collective investment schemes manager. Its sole shareholder is RDL Management, a Mauritian-domiciled company owned by David Cosgrove and Cobus Kellermann, and part of the Belvedere Management group. Cosgrove serves as a director on the boards of all three funds.

The FSC also approached the court to place the Trinity Global Fund and Lancelot Management itself under administration. Those applications will be heard at a later date.

The action by the FSC comes just over a month after the OffshoreAlert website claimed to have exposed Belvedere Management as “one of the biggest criminal financial enterprises in history”. It fingered Cosgrove and Kellermann as the masterminds behind what it alleged is an extensive and elaborate fraud involving a number of different funds domiciled in Mauritius, Guernsey and the Cayman Islands.

With regards to the three Guernsey fund companies, a statement on the FSC’s website reads in full:

“The Guernsey Financial Services Commission, acting to protect the interests of investors and pursuant to powers granted to it under the Protection of Investors (Administration and Intervention) (Bailiwick of Guernsey) Ordinance of 2008, today made an application to the Court to have administrators appointed to a number of Guernsey authorised investment schemes.

“As a result of that application, the Court appointed Grant Thornton Limited as the Administrator of the Global Mutual Fund PCC Limited, Worldwide Mutual Fund PCC Limited and Universal Mutual Fund Limited.

“As part of the same proceedings, applications were also made for the appointment of administrators to the Trinity Global Fund and Lancelot Management Limited. These applications will be determined by the Court at a later date.”

The three fund vehicles placed under administration all consist of separate cells, or sub-funds, which may be run by different asset managers. The three investment companies themselves provide the structure for these funds to operate.

The funds also appoint custodian banks and independent auditors. In all three cases, the fund custodian is Deutsche Bank. BDO audits the Global Mutual Fund, while the Universal Mutual Fund and the Worldwide Mutual Fund are both audited by Saffery Champness. Both BDO and Saffery Champness are amongst the 15 largest auditing firms in the world.

The latest audited financial statements available on the three funds show that in all cases both the auditors and custodians were satisfied that the funds were managed in line with the relevant legislation and that the accounts were properly prepared.

However, in its submission to the court, the FSC appeared to raise serious concerns about the way the funds were managed, including “systemic failings in corporate governance and the application of regulation, code and principle”.

If it is found that there has been fraudulent activity in these funds it would raise serious questions about the oversight the auditors and custodian banks should have played.

Moneyweb approached Saffery Champness for clarity on past audits, but managing director in Guernsey, Nick Batiste would only to say that: “Saffery Champness is a professional firm which does not comment on its clients or their affairs”.

All three funds do display patchy records. According to its latest financial statements, the Worldwide Mutual Fund was already in the process of being liquidated. Its two largest sub-funds had already been de-listed and suspended, presumably due to lack of liquidity.

The Global Mutual Fund houses the Strategic Growth Fund, which was suspended in February 2013. This is the fund about which the DeVere group has raised concerns, claiming that it had been struggling to get out the $50 million of client money invested in the fund.

One of the cells in the Universal Mutual Fund is the Ascenta Special Situations Resource Fund, which according to Bloomberg is 30% down over the last year. The latest fact sheet available for the fund, which dates back to November 2013, shows that while it made a gain of 56.63% in 2010, it produced returns of -27.51% in 2011, -14.36% in 2012 and -27.87% in 2013.

Apart from Kellermann’s connection to Lancelot Management, there is an additional South African link to this story. The Trinity Global Fund, which is the fourth vehicle that will be the subject of a later court application, houses the NeFG Global Diversified Fund. This fund is run by Vanderbijlpark-based firm New-economy-Financial-Group.

Moneyweb has approached NeFG for clarification, but it understands that the underlying funds in which the NeFG fund is invested are all blue chip funds and client money is therefore accounted for. As such there should be no losses to investors in this fund.

Moneyweb has seen the portfolio valuation of the $7.4 million NeFG cell, which shows that is invested in three underlying funds – The RE:CM Global Fund, Coronation Global Managed Fund, and PSG International Global Flexible Fund. These are obviously established vehicles and as all three are long only mandates dealing in listed securities, the underlying holdings are easily verifiable.

NeFG confirmed to Moneyweb that the fund is less than a year old, but since the speculation about Belvedere broke, they have ceased inflows into the portfolio. The custodian bank, Royal Bank of Canada, is also requiring full details of the ultimate beneficial owners of any investment before processing any redemptions.

According to NeFG, Lancelot Management has not played any decision-making role in the fund itself. Their involvement has simply been the provision of the Guernsey-domiciled vehicle, which includes the placing of investment trades.

Moneyweb understands that far from controlling the money in the fund, Lancelot has perhaps been too absent in its role as fund manager of the Trinity vehicle. It should play a day-to-day role in ensuring that the investment managers of the cells and the fund administrators are delivering the required service levels and meeting regulatory requirements, and it has not done so.

This is less of a concern with a fund like the NeFG Global Diversified Fund, which runs a long-only mandate, but for alternative investment vehicles that may deal in unlisted securities, it becomes very important for there to be oversight as price fixing is a constant risk.



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At last, where there is smoke, there is fire!
And when can we expect our FSB to come out with their report?

As I understand it, the FSB will not be producing its own report. It has only been assisting the investigations of other regulators.

The FSB / Reserve Bank / SARS already did an investigation and produced a report in to the affairs of Mcubed/Cosgrove and others some time ago during the 1993-1994 time. It was never made public, probably due to pressure or requests from PSG and others who offered to “make it right”. Now is the time in the public interest to make the contents of that report available. This will be the legacy of Mcubed/PSG of letting the likes of Cosgrove get away then to allow them to continue operating up to now.

The FSB has a lot to answer for …

So when will Moneyweb report on the background of Trinity?
Also on the contents of the findings of the FSC, Guernsey Financial Services Commission v. Lancelot Management Ltd. et al: Paul Yabsley Affidavit ?
Report on who the “pal” of Kellermann was that he bought the Stellenbosch property originally from ?

Moneyweb has been a lame duck on this scandal since it broke and has acted like a damage controller and mouthpiece for the financial interests af all the people and financial institutions involved.

Sorry, the correct time period is 2003 -2004. Need an editing function on this Moneyweb comment system badly …

Isn’t it funny that Moneyweb writes that not acting according to regulatory requirements and not performing your job as administrator properly, is “less of a concern with a fund like the NeFG Global Diversified Fund” ? So some funds/people are above the law/ethics and others not? BTW Moneyweb, your distinction used was for “long only”, when alternative funds can be long only too. Also how do you know for certain that the N-e-FG Global Diversified Fund does not own any “unlisted securities”, especially since oversight was lacking ? did you see and verify ALL their holdings ?

I think the article makes it clear that the distinction is that this is a long-only fund invested in listed securities. This is not about being above the law or ethics, it is simply a practical matter. It is fairly simple to verify the holdings of long-only funds that only hold listed securities, since there are records of all the dealings and brokers involved that have to be able to match trades. So there is less to worry about than with funds dealing in unlisted securities or derivatives.

The holdings of the three funds held within the NeFG Global Diversified fund are all publicly available. The RE:CM fund holds almost exclusively listed equities and cash, with a tiny proportion of listed property. The Coronation fund also holds some bonds, and the PSG Fund is only invested in equity and cash. It is verifiable that the NeFG fund holds nothing else besides its investments in those three funds, so yes we can be certain that it does not hold any unlisted investments.

The only thing that was clear from your article was that you felt there should be distinction between which funds should be held to the law according to their style and/or holdings … It’s a “practical matter” to do as the law says …

We have only your/Moneyweb’s word that there are only 3 funds inside the N-e-FG Global Diversified Fund. Those 3 fund’s holdings are easily publicly verifiable yes, but not the “fact” that there are only those 3 funds in the N-e-FG Global Diversified Fund. That is one of the reasons these funds are offshore, to make things as difficult as possible to get information.

Being offshore doesn’t make it any more difficult to get information on these funds. They are subject to very much the same kind of scrutiny as local funds. They have audited accounts and holdings. I am sure that if you contacted NeFG or the fund administrator, Lumiere, they would gladly send you the fund fact sheets and holdings. Bear in mind that the Coronation, PSG and RE:CM funds are also domiciled outside of South Africa, in Ireland, Malta and Guernsey respectively.

I did not make any comments about who should be held to the law and who shouldn’t. That would be an incorrect interpretation of the point I was making, which was really about Lancelot, not NeFG.

Patrick, you as well as I know that these funds don’t give you the full details of ALL their holdings, even when you write to them. However, besides that point, I should not have to write to the administrator to get these facts. It should be available publicly and online. I should be able to see for myself if the only thing NeFG do is hold those 3 funds, then I can do that myself instead of paying them extra expensive fees.

You’ll have to take my word for it then. I have seen the fund valuation and the corresponding portfolio valuation and there are only these three funds in the portfolio. Should the fact sheet be online? I would certainly prefer it to be. But not even all local fund managers make their fact sheets available on their websites. Some only send them on request.

There are many cross holdings in some of tehse funds mentioned. Like the NeFG BCI Income Provider Fund which owns the N-e-FG Global Diversified Fund as a holding.
The N-e-FG Flexible Fund, offered by Momemtum and Sanlam platforms, also holds it.

What you list here are not cross-holdings. They are separate funds that hold this fund within their portfolios. There is nothing unusual about this. Many asset managers have funds that invest in in-house funds. The Coronation Balanced Defensive Fund, for instance, invests in the Coronation Global Opportunities Equity Fund, the Coronation Global Capital Plus Fund and the Coronation Global Emerging Markets Fund. It saves them repeating the same investments in different funds.

The point is, Patrick, you did not mention that there are funds in SA holding the N-e-FG Global Diversified Fund which forms part of the Belvedere structure now suspended by the Guernsey regulator.

You’re right, I could have mentioned that. However, the structure has not been suspended. Investors would still able to make investments, but NeFG has chosen voluntarily ceased inflows into the portfolio. Investors are also able to make redemptions. These are however under very tight scrutiny from the custodian, RBC.

End of comments.



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