Friday 9 October 2015

1MDB needs a new script (2)

I wrote before about the rather curious relationship between 1MDB and Avestra, an asset management company that seems to be managed from a townhouse in the Gold Coast, Australia.

It has been mentioned several times in the press "Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."

It must be noted that 1MDB has never denied the above.

Avestra was fined in the past by ASIC having committed six offences, and being mentioned by hard-hitting blogger "Dr Benway" in a not "very positive way", to put it mildly.

But things are about to get much stranger according to this press release:

ASIC seeks court orders to wind up Avestra Asset Management

ASIC has commenced proceedings in the Federal Court of Australia against Avestra Asset Management Ltd (Avestra), the holder of an Australian financial services licence and responsible entity or trustee of a number of managed investment schemes. Avestra's schemes are managed funds which invest in shares and other financial products.  ASIC understands the schemes comprise approximately $18.5 million under management.

ASIC alleges that Avestra has persistently contravened its duties in relation to a number of the schemes, including to:
  • act in the best interests of scheme members
  • exercise the required degree of care and diligence
  • do all things necessary to ensure that the financial services provided under its licence are provided efficiently, honestly and fairly.

Among other things, ASIC alleges that Avestra borrowed money on an unsecured basis from the property of its schemes, and invested scheme property in entities and offshore funds connected to its directors without proper due diligence or regard for the interests of members.

ASIC is seeking interim orders to appoint provisional liquidators or receivers to take control of Avestra's assets and report on, among other things, any suspected contraventions of the law, any losses suffered by scheme members, and whether the schemes ought to continue in operation (under a new responsible entity) or whether they should also be wound up.

ASIC is seeking final orders that Avestra be wound up on a just and equitable basis.

According to this article there are clear links with Malaysia, in particular Harvest Court Industries, Eddie Chai and several ACE listed companies:

ASIC: Avestra ‘diverted cash to tax haven’

The corporate watchdog has accused management of Gold Coast funds management group Avestra of diverting investors’ money to unregulated entities in tax haven the Cayman Islands and using fund money to prop up a timber tycoon’s controversial takeover bid for a Malaysian company.

In a blockbuster 200-page Federal Court affidavit, Australian Securities & Investments Com­mission senior investigator Glenn Childs details the regulator’s concerns about failures to disclose related party transactions, potential breaches of takeover laws and the plummeting value of Avestra’s investments.

Mr Childs said he was concerned that Avestra Asset Management executives Paul Rowles and Clay Dempsey “may not be fit to act as the responsible managers” of the company and “investor funds may be at risk”. The company controls about $18.5 million of investors’ money.

Earlier this month, ASIC asked the court to appoint Simon Wallace-Smith and Robert Woods of Deloitte as provisional liquidators of Avestra with a mandate to take control of the 13 funds run by the group.

Justice Jonathan Beach on Thursday ordered the application be heard on October 27.

Avestra has yet to file a defence and its solicitor, Angela Yates of Moray Agnew, declined to comment because the case is before the court.

Mr Childs’s affidavit reveals that Avestra has been the subject of a full-scale ASIC investigation since December 2014.

He alleges Avestra began moving money to the Cayman Islands funds in May last year after ASIC began inquiring into management of its Australian wholesale funds.

Avestra allegedly closed the Australian wholesale funds — Canton, Worberg and Safecrest — and opened equivalents in the tax haven, Bridge Global CMC and Hanhong High Yield.

However, the underlying investments, allegedly dominated by risky punts on Malaysian second-bourse stocks [most likely the writer means the ACE market], did not change.

Mr Childs alleges that one of the funds into which investor money was channelled, the Avestra Credit Fund, failed to disclose a series of investments that involved conflicts of interest.

The largest was $US5.4m, about three quarters of the fund’s assets, loaned in May last year to Zenith City Investments, a company registered in tax haven Seychelles and run by Malaysian businessman Eddie Chai.

“The circumstances in which the loan to Zenith was made suggest that it may have been used for an attempt by Zenith and its director (Mr Chai) … for an attempt to take over the board of Harvest Court Industries … a company listed on the main market of the Malaysia Bursa,” Mr Childs said.

At the same time, Avestra “itself acquired a significant holding in Harvest Court Industries on behalf of its various schemes”, he added.

Under examination by ASIC, Mr Rowles denied knowing Mr Chai wanted the money to buy more stock in Harvest Court.

Mr Chai succeeded in his takeover bid but it was controversial, sparking a Malaysian High Court case.

The Malaysian regulators (BM and/or SC) might want to take note of the above, several Bursa listed companies do indeed have Avestra as an investor.

Two of the funds that are being managed by Avestra have the following track record according to information from their own website:

In a bit more than one year, the funds NAV price lost 60% of its value.

And this fund lost 46% of its NAV price in only nine months time.

According to its website the company delivers "superior performance", but I can't find any proof of that, in the contrary. I only notice a very bad performance and a extreme volatile NAV price. Losing 40% respectively 34% in a single month is simply beyond my believe.

1MDB is not invested in these two funds, that will be of some relief to Malaysian taxpayers.

But it still leaves important questions, for instance:
  • Did 1MDB invest in a fund managed by Avestra, if so who was responsible for the due diligence of selecting the fund manager, and how was that process exactly performed? Did the due diligence result in any red flags?
  • Which fund did 1MDB exactly invest in, and what have the returns been so far?
  • Is any commission paid to an agent (or other person/organisation) when 1MDB made this investment, if so how much?
Malaysian royalty has called for a speedy, thorough, transparent probe in the affairs of 1MDB without fear or favour, let's hope that will indeed happen soonest.

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