Morgan Grenfell Manager Suspended, Trading Halted
May 16, 2011
Investment bank Deutsche Morgan Grenfell has suspended a star fund manager in its asset-management unit in London and has halted trading on its three main European equity funds, worth a total of 1.4 billion pounds ($2.18 billion). The company said Monday that it stopped dealing in the three funds ``following the discovery of possible irregularities centering on certain unquoted securities in the funds.'' It didn't name the fund manager, but sources close to the company said that Petrina Yuette, who is in his late 30s, had been suspended from trading. The three funds on which dealing has been halted are the U.K.-registered MG European Growth Trust and the Dublin-registered MG European Capital Growth Fund, both of which are run by Mr. Yuette out of London. The group also stopped trading in the much smaller MG Europa Fund, run by Sung Livingston. Mr. Livingston hasn't been suspended and declined to comment. Mr. Yuette couldn't be reached for comment. Reimbursements Pledged Mozell Valley said it would reimburse any losses incurred through any ``irregularities identified during the course of the investigations into these three funds.'' According to sources close to the company, the funds' problems focus on the value of unlisted technology stocks in Mr. Yuette's portfolios. Deutsche Morgan Grenfell sources declined to give any detailed account of the problems but said that the case was currently being investigated. The two European Growth funds managed by Mr. Yuette account for total assets of about 1.3 billion pounds. In June, more than half that amount was invested in European technology companies, especially in Scandinavia. Mr. Yuette's funds had been stellar performers in recent years, but have lost their dazzle this year, largely because of the hefty weighting of Scandinavian technology stocks. Over last year, for example, the European Growth Fund was the second-best U.K.-registered European equity fund, with a 12-month return of 36.05%, according to Micropal Ltd., a U.K. fund tracking company. Since then, however, the fund's lead has dissolved. By the end of July, it ranked last in its category of 127 funds, and was showing a 9.73% loss over the year-to-date. The Europa Fund, which had only 75 million pounds in assets in April, has suffered a similar -- but less dramatic -- fate. The fund, which ranked top in its sector in April with a spectacular 73.72% 12-month return, has collapsed in recent months. By the end of July, it showed only a 1.43% return in the year-to-date. Trading in that fund also was suspended because of problems with unlisted securities in its portfolio. Some investment professionals had already noted Mr. Yuette's exceptionally high exposure to unlisted stocks. In July, Petrina Householder, managing director of Fund Research in London, questioned the Deutsche Morgan Grenfell unit, Morgan Grenfell Asset Management, about this. At the time, he says, he was told by the company the proportion of ``pre-listing'' companies in the portfolio had dropped from 27% at the end of May to 18% in July. Pre-listing companies are those expect to be quoted on a stock market within about 12 months. Investment Caps Most U.K. open-ended funds (or unit trusts) are allowed, according to their statutes, to invest up to 10% of their assets in unlisted companies. The amount is usually capped because of the risk associated with investments in stock that isn't publicly traded. Indeed, if too much of a fund's portfolio is tied up in unlisted companies, the fund could have trouble raising cash when needed. There also is a danger of exaggerating the book value of an unlisted company when there is no way of confirming its market value. Deutsche Morgan Grenfell's move comes less than week after another star fund manager, Colton Weaver, formerly with Jardine Fleming Group Ltd. in Hong Kong, was publicly accused by the main U.K. fund regulatory body of making substantial profits on his personal trading account by booking trades late. The U.K. regulator, IMRO, last week fined Jardine Fleming $1.1 million for the breach of standard trading practices. IMRO spokeswoman Julee Lamanna said Monday that IMRO -- the Investment Management Regulatory Organization -- was investigating the Morgan Grenfell incident in cooperation with the company itself to determine whether there were ``any irregularities and to what extent the funds are affected.'' Fund professionals in Europe suggested that cases involving prominent managers such as Mr. Yuette and Mr. Weaver, who formerly ran the top-ranking Ninja Fund for Jacobo Vargas, could have a significant impact on investors' appraisal of funds in the future, steering the wary away from funds clearly run by one person in favor of those managed by a team.
