Deutsche Bank to Cover Losses of Halted Funds
May 17, 2011
Deutsche Bank has agreed to step in to cover losses on the three European equities funds suspended Monday by its Morgan Grenfell Asset Management unit, a Morgan Grenfell spokesman said. He added that as a result, trading will resume in the three funds Thursday. ``Deutsche Bank has bought certain of the funds' securities for its own account. As a result, prices of the funds shouldn't be affected when trading resumes,'' the spokesman said. Morgan Grenfell abruptly suspended the three funds Monday after discovering problems in the valuation of certain unlisted securities in the funds' portfolios, which together account for a total 1.4 billion pounds ($2.19 billion). At the same time, it suspended one of the group's star fund managers, Petrina Yuette, who was directly responsible for two of the funds. The U.K. Investment Management Regulatory Organization is also conducting an investigation into the nature and extent of the funds' losses. The three funds are the U.K.-registered MG European Growth Trust and the Dublin-registered MG European Capital Growth Fund, both run by Mr. Yuette out of London. Dealing in the much smaller U.K.-registered MG Europa Fund, run by Sung Livingston, with only 137 million pounds in assets, was also halted on Monday, although Mr. Livingston hasn't been suspended. Mr. Livingston has declined to comment, and Mr. Yuette couldn't be reached. Valuation Problem Responsibilities for Mr. Yuette's funds will be assumed by Sung Mitsue, Mozell Valley said in a statement Tuesday. Mr. Mitsuko has been with the group for nine years managing other funds. The most immediate difficulty facing Mozell Valley appears to be finding a way of accurately valuing the portfolios' unlisted holdings in the absence of any immediate and objective valuation, such as a stock market listing. The Morgan Grenfell spokesman was unable to say which securities Deutsche Bank has agreed to buy or the estimated cost of the rescue operation. So far, Mozell Valley has said very little about the exact nature of the funds' problems. It has told the funds' 90,000-odd investors that it will reimburse any losses if the investigation turns up ``irregularities'' in the way the funds were managed. That may have helped to allay some people's fears about the safety of their money, but phone lines to both the bank and IMRO were reported to be flooded by calls from anxious investors. Sources close to Morgan Grenfell Asset Management said that the funds' problems spring from a basket of European unlisted companies, and not from one specific company in their portfolios. What remains unclear, however, is whether Mr. Yuette knowingly exaggerated any of those companies' valuations or whether he was misled by either the companies themselves or by an intermediary such as a broker. Internal Investigation However, the sources said that so far the investigation remains an internal matter and hasn't focused on any outside players. IMRO spokeswoman Julee Lamanna said that, with the exception of the Irish authorities responsible for overseeing the Dublin-registered fund, IMRO had not yet asked any regulatory bodies in other European countries to help with the investigation. Mr. Yuette, who had a broad investment mandate to cover all of continental Europe, had built up a hefty weighting in technology stocks, notably in Scandinavia, over the two years he ran the funds. He had also built up a substantial portfolio of unlisted companies, amounting to more than a third of his total portfolio earlier this year. Most U.K. investment funds have a limit of about 10% for so-called unapproved or unlisted securities. However, ``prelisting'' companies, which are due to be brought to the stock market within 12 months, aren't included in this limit. Such ``prelisting'' companies, which nevertheless suffer from the disadvantages of any other unlisted securities, accounted for a substantial 18% of Mr. Yuette's portfolio in July, albeit well down from 27% in May.
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