Industry Updates

UK FSA bans and fines ex-BlueBay fund manager for deceiving investors

Thursday, February 04, 2010

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Opalesque Industry Update – The former manager of BlueBay Asset Management’s defunct hedge fund Simon Treacher was banned by the UK Financial Service Authority (FSA) for massaging his performance figures. He was also fined $224,000 (GBP140,000), various media reports said.

A Bloomberg report said that Treacher, formerly in charge of BlueBay’s $1.24bn Emerging Market Total Return Fund, cut and pasted figures into seven broker quotes in 2008 to make it appear that the fund’s value had increased by $27m. The fund’s investors lost an estimated $650,000 for his actions, which BlueBay was forced to repay.

Darren Fox, a regulatory lawyer at London-based Simmons & Simmons was quoted by Bloomberg as saying: “It shows that the FSA has hedge fund managers firmly in their cross-hairs after Galleon. It also shows that the FSA is minded that banning an individual is the kind of punishment that hits hardest, by taking away people’s livelihoods.”

WSJ.com said the FSA found Treacher guilty of altering seven documents to support positions he had mismarked in his portfolios to make it appear that the fund returned positive results from July to September 2008. Collaboration between hedge fund managers and administrators is a common practice, especially in illiquid instruments, although critics said this method increases chances for deception.

BlueBay said it reported the irregularities to the FSA when it noticed a discrepancy in recorded prices at the end of September 2008 and began an internal investigation in November 2008, according to the Financial Times. Treacher was forced to resign from the company and BlueBay closed down the fund in November 2008.

The fund had lost more than 80% of its value in the year before the closure.

BlueBay announced in 2008 that its decision to wind down the fund had “no connection” with Treacher’s misconduct, which had “no material impact” on net asset value of the fund. The firm said Treacher was forced to resign on violation of internal valuation policies, said the Daily Mail.

The financial regulator said in a statement: “The FSA views Treacher's misconduct as particularly serious because he was an approved person carrying out a controlled function, and a senior and experienced portfolio manager who was fully aware of his responsibilities.”

Meanwhile, the London-based manager of fixed income funds reported that its assets under management (AuM) posted a 10% increase as of end-December 2009. From $31.1bn in 30-Sept, BlueBay’s AuM jumped to $34.3bn, which was the firm’s fiscal second quarter.

A BusinessWeek report said the firm believed that the return of investors to credit markets caused the rise in their AuM.

The rise in its AuM was a significant leap after BlueBay said in its annual report on 30-June-09 that its assets had risen to $24.3bn from $21bn during the period. However, despite the rise in AuM, BlueBay’s profits declined from GBP115m (Eur128m) to GBP101m at the end of its fiscal year, as the money flowing into lower margin long-only strategies failed to offset the impact of the decline in higher margin long/short assets. – written by PD –

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