New insights into trust and ethics among advisors and fund managers

Intriguing questions and interesting developments related to Coronation, Peresec Prime Brokers, A2 Investment Partners, Novus and York Timber.
If its former manager has caused reputational damage and it can’t claw back any bonus, could a shareholder force Coronation to take action? Image: Moneyweb

Coronation is dead right – ‘trust is earned’. That’s the fund manager’s marketing tagline. Last week it probably ‘unearned’ a huge chunk of trust.

On Friday Fin24 provided details of a letter Coronation had sent to its clients describing how one of its managers had profited from exploiting a “pricing inefficiency”.

The letter, which related to the “legal and transparent” trades done by now-former executive Adrian Zetler, highlighted just why so many ordinary investors do not trust the investment community.

These ordinary investors comprise pensioners or employees who generally do not have the skills or resources (including time) to constantly track markets. They rely on extremely well-paid financial advisors and fund managers to fill that critical gap.


Rightly or wrongly many investors suspect that one way or another – always legal of course – their fund managers and advisors are benefitting unduly at their expense; this is the eternal ‘agency’ problem.

It may be just a few cents here and there for every share or unit trust involved, but for the ‘perpetrators’ all these cents add up to a very nice low-risk profit.

In the letter, Coronation explains that Zetler, who had been with the company for 11 years, resigned in January after the company took legal advice and launched an inquiry into his trading activity in some of Coronation’s unit trusts. The investigation went back three years. It emerged that Zetler had been involved in the trades since March 2020.


According to Fin24, while Zetler didn’t break any rules Coronation said his actions “clearly did not align with Coronation’s long-term investment philosophy and ethos”. Zetler resigned once he understood how the firm felt about his activities.

The rather benign-sounding ‘pricing inefficiency’ provided Zetler with scope for low-risk personal profits.


Coronation says the impact on the value of the affected unit trusts was “immaterial”. However, it compensated the unit trusts with the equivalent of the profit made by Zetler and four clients who appeared to have been involved in the same trading activity.

Of course ‘immaterial’ in the context of the value of a unit trust allows considerable scope for the making of hefty private profits.

A yet-to-be-addressed issue

So, here’s the issue that does not appear to have been addressed in Coronation’s letter: what happens to Zetler’s bonus for the period he was conducting this “perfectly lawful” and highly profitable personal trading activity? Coronation won’t disclose these details, which it says are confidential.

Coronation, as with many large fund managers, pays out enormously generous bonuses to its senior executives every year. Will it be able to withhold any bonuses announced, but not yet awarded, and more significantly, will it be able to claw back bonuses that were paid during the period of the trades?

This is where the distinction between law and ethics becomes significant.

While you don’t really have to trust people to act lawfully – law enforcers are there to ensure that – when it comes to ethical behaviour, trust is required. This is presumably why Coronation takes trust seriously enough to use it as its marketing tagline.

But are trust and ethics concepts that are too fuzzy to enforce a bonus clawback if it came to a court battle? If so, we have a problem.

Reputational damage?

And then there’s the question of whether or not Zetler has damaged Coronation’s reputation. Some traders reckon he has demonstrated the sort of savvy inclinations that are useful in a no-holds-barred market environment.

However there are those – particularly among ordinary members of the public – who wonder why Zetler did not report this ‘price inefficiency’ to his bosses as soon as he’d identified it and ensure it was closed down; after all, he was a high-paid member of the Coronation team.

If there has been reputational damage and Coronation can’t claw back any bonus, could a shareholder force the company to take action?

Perhaps more concerning is why Coronation had not addressed this pricing inefficiency much earlier; Zetler told Fin24 he disclosed all of his trades.

Market participants confirm it’s a fairly easy trade to do and that other unit trust managers shut it down long ago. Coronation disagrees and says the pricing inefficiency is an industry issue and reflects the complexity involved in pricing unit trusts. After this incident perhaps the Financial Sector Conduct Authority (FSCA) should step in.

The fund manager, which admits to being shocked by what happened, also says it acted promptly and professionally when it discovered what was going on. It communicated with all its large clients and consultants.

Meanwhile …

As it happens, one of last week’s significant Sens announcements revealed that Peresec Prime Brokers and A2 Investment Partners have each built up a 17.4% stake in printing group Novus.

The two investors also happen to be building stakes in York Timber. Their combined holding in Novus is a tad under the 35% that triggers an offer to minorities.

A2 Investment Partners is the company Zetler set up after he left Coronation in January.

This article was updated after publication to reflect additional information provided by Coronation, including that it informed clients when the company became aware of Zetler’s activities.

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Any profit by the investor is purely coincidental.

Not all clients got letters ? I didn’t.

Coronation will have to spend much more on earning trust. Goodbye

My Coronation Unit Trusts did well. I can’t complain.

What a mess.

Zetler: shouldn’t be allowed to sell popcorn at a school fete, let alone be a director of an investment company, clearly he didn’t think his fiduciary and insider role meant anything at Coro, the CIPC and FSCA wont act, Coro should have brought out the big stick

you paid back the money taken from investors – you expect praise?
you allowed him to resign and not conduct a disciplinary? – a good leaver?
your systems were not monitoring staff investments – compliance?
you don’t inform investors an your insider profited? – oversight/ fiduciary?
my adviser and I read in the press about your mess – trust?

investors are expected to trust Coro – you should have fronted this, not buried it

I expect nothing less from some portfolio managers, they are expected to find opportunities. I expect Coro to manage that process, it stinks as bad as it looks.

Regarding the Coronation piece – does anyone have a link to that Fin24 article, or similar, that is not behind a paywall? Would love to see more detail about what exactly transpired

Front running, insider trading, profiteering on a “pricing ineffeciency”?… cry Me a river…its Standard practice by most analysts and managers in this market we call the JSE. Adrian is small potatoes in the entire machine. He was smart enough to find the opportunity, but not smart enough not to be caught. He has moved on, let it be.

I don’t think you understand the difference when you’re frequently trading offshore feeder unit trusts in this fashion. You enrich yourself at the expense of other unit trust investors. The “profit” is effectively increasing your share of a unit trust at the expense of other unit holders decreasing their share ie you’re reallocating money from other unit trust investors to yourself. That’s why Coro paid the “profit” back to the fund.

It’s different to a normal trade between a willing seller and buyer.

Trading offshore unit trusts is effectively stealing but hidden under sophisticated terms like “exploiting a pricing inefficiency”.

Ultimately Coronation is at fault here as they were caught napping. They should have been monitoring trading on their offshore feeders particularly when this is a well known and documented industry problem and monitoring of investor trades is required by Management Companies.

As a very minor trader, erratic movements in some of the small and mid-cap shares have always raised my hackles and my suspicions that there has to be some form of manipulation going on.

Nothing from Coronation has outperformed my own investments in the past 10 years.

Has Coronation really earned trust? Have they earned their bonuses?

Are the fund manager bonuses to buy their Ferrari’s justified?

Coro were always a group of professional lunchers and golfers. So who does one trust in the local asset management community?

This is a big deal it should not go away quietly.

Ann Crotty – well done for not backing down, a real seasoned independent journalist, after they pulled your article yesterday you haven’t softened it, good job Ann.

Coro – IF you put pressure on Ann to change the facts – shame on you. Perhaps if you fronted up we would know what happened, instead you remain silent to your investors. Karl and Pieter you are better than this.

Zetler – to be very clear, he was not an ordinary investor. He was an insider and a fiduciary. He stole from investors based upon his inside info. Every fund manager has a better idea than ordinary investors which way his fund will move over 24hrs, he used this at the expense of the investors who trusted him.

There is no magic money in a unit trust, it ALL belongs to investors, the money Zetler took belonged to investors. The fact that Coro put it back tells you that investors lost out to Zetler.

Who to trust? – Coro have demonstrated that they would rather keep quiet and protect themselves and Zetler. My adviser has no answers which is unacceptable, after recommending I invest with Coro.

Just another case of investors being fleeced by a South African financial services firm, history repeats.

End of comments.




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