The heading to this story will (in a few minutes) make sense to readers who are familiar with the songs of Ray Davies and The Kinks. It is a matter of she being a he…
The rules for running collective investment funds (SICAVs in Europe and OEICs – open ended investment companies in the UK) are strict and intended to protect investors. So, for example, a fund manager can’t have more than 10% of the fund invested in a single share and is not allowed to hold too many shares in a single company. This is basically a legal enforcement of the excellent principle of diversification. Funds are also not allowed to invest in unlisted shares, except in a very limited way because such shares are impossible to value reliably, apart from being potentially riskier.
Fund managers are well paid and generally well-educated people, but they work in a highly competitive world and can come under pressure to maintain fund performance relative to their peers so that money flows into their fund and fees accumulate for their employer. Occasionally, as in most occupations, the pressure of the job prompts a fund manager to take short cuts or even commit fraud.
In the mid 1990’s a manager called Peter Young at Morgan Grenfell appeared to be very successful, but it turned out that he was circumventing the rules to invest very heavily in companies he liked and in unlisted companies. He was also filtering off some of the fund’s money for his own use. Incredibly, he even made up his own company to invest in.
One of his investments became subject to regulatory scrutiny for reasons not directly connected with his fund or employer and it was noted that he kept buying the shares at a premium price, which was odd as the investigation had for valid reasons caused a sharp fall in the price. This put the spotlight on his dealing in general and the whole sorry sham unravelled. When the manager was prosecuted he turned up in court dressed as a woman and it transpired he had attempted a DIY sex change! Although found guilty on all charges, he was not sent to prison on grounds of insanity.
If the reference to Lola still makes no sense, I recommend resorting to Google or Wikipedia!
The Morgan Grenfell company was owned by Deutsche Bank and they fully re-instated losses to investors at a reported cost of £400 million.
The lesson here is that wherever possible find out what you can about who is managing a fund and how they are doing it. Also deal with investment firms that have a good reputation for corporate governance, who value their good name and will have deep enough pockets to bale you out if there is a fraud. If you can, look at the fund’s top 10 holdings (this information is in the fact sheets for the public) – and check out a few of those businesses listed in the top 10. You ought to have at least heard of one or two, unless the fund is very specialist, even if it is not a UK investment. If you are using an adviser, make sure they can answer a few simple questions about the fund, having done the donkey work for you.