Cape Town – The Cayman Islands Monetary Authority (CIMA) on Monday announced that it had placed the Brighton SPC in controllership. Two representatives of PwC Finance & Recovery have been appointed to assume control of the affairs of the fund.
The only active cell within Brighton SPC is the Kijani Commodity Fund, which is suspected of being unable to verify its assets.
The decision from the CIMA to put the Brighton SPC in controllership follows from a forensic examination of the fund conducted by PwC. Kijani itself has been in voluntary suspension since 18 March.
The suspicions around Kijani were first raised due to its almost unerringly positive performance record. Out of the 51 months it had been operating up until April this year, it had showed a positive return for 49 of them. In only one month had it been negative, while one month showed a zero return.
The fund claimed that it was able to produce these returns through using specialist alternative strategies, particularly commodity trading arbitrage. However the forensic audit was instigated by the CIMA after shortcomings were identified in the financials of the fund’s underlying asset, Kijani Resources Limited. While the audited accounts painted a rosy picture, a deeper analysis suggested that there was little assurance on the assets Kijani claimed to have.
Since all of Kijani’s assets are unlisted or infrequently traded, apart from what it holds in cash, the board’s directors were responsible for valuing them. While the fund’s underlying assets were audited and received an unqualified audit report from an independent audit firm based in the UK, it appears that those valuations were not thorough.
This has raised questions about the independence of the board and whether it had misrepresented asset values.
Kijani was relocated to the Caymans from Mauritius between November last year and February 2015. In Mauritius it was a sub-fund of the Four Seasons PCC, which was managed by the David Cosgrove and Cobus Kellermann-owned RDL Management and administered by Belvedere Management.
When Brighton SPC was established in May 2014, RDL Management subscribed for all of the management shares. That gave it effective management control of the umbrella fund into which Kijani moved. That however changed at some point, with RDL Management passing over its management shares in Brighton SPC to UK-registered and regulated Straffan Asset Management, the investment adviser to Kijani.
Although this ended the direct connection between RDL and Kijani, there have been suspicions that Straffan is merely acting as a front for the Mauritian entity. This is a contention that both Kijani and Straffan deny. Straffan’s head of marketing, Nicolas Egger told Moneyweb that: “In terms of the relationship between Belvedere/RDL and Straffan, the answer is very simple and unequivocal. There is none.”
What may or may not be true about this relationship could however be fairly academic to investors who now face a potential three month wait to hear what will happen to their money.
What can investors expect?
Unfortunately for investors, the most likely outcome of PwC’s controllership is that the fund will be liquidated. Hopefully that will result in their capital being returned to them, but until such time as there is more clarity on the status of Kijani’s assets, it’s impossible to tell what any potential payout might be.
Kijani has received clean audits every year since 2011, which either suggests that there is reason for optimism or that the auditors have been systematically duped from the start. If it proves to be the latter, some tough questions will have to be asked about the oversight role that auditors and custodian banks should have been playing.
It is also worth noting that while BDO Cayman Islands is listed as the fund’s auditor on Kijani’s website, the firm has confirmed to Moneyweb that no new engagement agreement has been signed with the fund. The audit of Kijani Resources Limited, the underlying asset, was also not conducted by BDO.
Kijani was approached for comment through its PR agency, however no feedback had been received by the time of publishing.