Simply too complicated

Published on the Malta Independent¸ issue 06 March 2011


Simply too complicated… that was what a blind 95-year-old investor¸ who was also hard of hearing and not financially literate¸ remarked when he was made to sign a document declaring he was an experienced investor. Sadly¸ he lost his holding in La Valette Property fund. Many others did not understand the volatility of their investment (which we know has collapsed). It is no secret that Bank of Valletta (BOV)¸ acting as custodian of the botched fund¸ issued clean custodian certificates for three years in succession. The saga of the failed fund is not new to readers but for sake of exactness I am reproducing some comments and information garnered from the media.

It all started when promoters of the fund¸ particularly at branches of Bank of Valletta¸ earned cool commissions selling the vehicle as a low risk property fund¸ which we now know has lost €50 million. The original fund sparkled off at a handsome sum of €84 million but as we shall see later on dropped in value to €30 million. Its brochure described it as a multi-manager property fund¸ which as the name implies has all the fortitude of a diversified and well-managed vehicle. This vehicle was managed by Valletta Fund Management¸ itself owned jointly by BOV and Insight. It all started to go wrong when Insight as the managers decided to place a sizeable chunk of the invested monies in Belgravia European Property fund that turned out to be the bad apple in the barrel. In their defence¸ Bank of Valletta and Valletta Fund Management said that they had kept fund holders fully informed on the performance of the Property Fund .The fund hosted 13 sub funds with a total of 22¸000 shareholders out of which it was only the La Valette Multi-Manager property funds that was under stress. As a conciliatory note to shareholders the bank said that one swallow does not a summer make. Yet not all apples turned rotten as other funds were safe given that the legal structure of a Sicav ring fences the separate funds or cells. This plea did not hold water with most of the fund holders such that a good number filed judicial protests.

One of these protests was by Finco Trust¸ which alleges that BOV had not been transparent with shareholders as it failed to disclose the fact that the Belgravia fund’s directors were being criminally investigated for fraud by the Jersey police¸ and that its shares had been suspended by the Jersey Financial Services Commission.(JFSC). It alleges that since the Sicav was owned by BOV through its subsidiary Valletta Fund Management¸ the bank could not offer independent guardianship of the fund as required by law. Unfortunately things went sour. In September 2008 a press release issued by the JFSC stated that Belgravia Fund Managers had suspended all redemptions in the fund. Furthermore¸ the Commission was concerned that each of the suspended Funds were without adequate or effective management or financial or accounting controls in place. It was plain to see that the true and correct value of the investments or other assets of such funds could not reasonably and reliably be ascertained. Having said all this¸ the bank through its hierarchy has put on record its sympathy with the fund holders. It was forthright in publicly expressing its sincere regret on the poor performance of the Fund¸ saying that it never failed to do its level best to secure the best possible outcome in the circumstances concerned. The bank urged all concerned to await the outcome of the MFSA investigation into this matter – an i