Investors in the UK have had a tough time recently as the industry has been shaken by a couple of high profile fund failures. Recently, Neil Woodford, one of the country’s star fund managers saw his high profile fund shutdown and thousands of investors are struggling to get back their investments.
Now yet another fund manager is in hot water. The BBC One’s Panorama recently uncovered evidence that Mark Denning of the Capital Group was breaking investment rules, acquiring shares for his own benefit. This is a clear conflict of interest and has resulted in his resignation.
When the BBC sent in the results of its investigation to Capital Group it caused an uproar and resulted in Denning resigning from the company five days later. Capital Group sent out a notice confirming that he was not connected with the company anymore.
Denning acquired shares in the same companies as the funds he managed which was a clear conflict of interest as investing funds in these companies will boost share prices which he was acquiring on the side. This is a dangerous mode of operation as it can result in fund managers picking out investments for their personal benefit rather than better returns for their investors.
Investigations show that shares were bought on Denning’s instructions via a Liechtenstein-based fund called Morebath Fund Global Opportunities. He instructed purchases in Mesoblast, a medical research company, Eros International, an Indian film outfit and Hummingbird Resources, a gold mining company.
This would normally not be a problem but several Capital Group funds managed by Mr. Denning also invested in all three companies. Additionally, Hummingbird Resources was also set up and run by his son-in-law, which is another source of conflict of interest.
Despite his departure, Capital Group assured investors that their funds will not be affected. Capital Group operates by running a fund with a team of 2 to 12 managers. The funds are usually divided into different sleeves and assigned to managers so that it matches their style. This better improves the fund’s diversity and lowers fund volatility.
UK Investors Concerned
Even though Capital Group has assured investors that their funds are safe, this latest investment scandal will cause UK investors to be rather concerned. A recent survey revealed that 74 percent of investors think that the Woodford scandal has negatively affected their trust in the asset management industry.