What happened?
Media reports suggest 1,000 individuals lost some $1.2 billion in super savings as the result of bad investments in two managed funds, First Guardian Master Fund and Shield Master Fund.
These funds were both started within the last five years, and all operated in Australia as registered funds, that should have been closely watched and monitored by ASIC.
And just to make this clear, a managed fund is where a group of investments managers come together and decide to pool their expertise and try to attract investor funds for them to invest.
These funds can describe themselves as balanced with a spread of investments across a range of investments or they can promote themselves as investing in say just one asset class such as solar farms and or anything in between.
Interested investors are then given a product disclosure statement that is meant to tell them all about the underlying investment including risks attached to them. Then if the investor decides to go ahead, their funds are pooled with funds belonging to other investors.
The fund managers then invest the funds in line with the descriptions in the PDS and they then charge a fee which should be clearly disclosed, to the fund to cover their costs in managing the funds.
In the case of these funds, it appears the directors engaged in misleading conduct by describing their underlying investments as well-balanced and conservative.
Their claims were supported by reports from an independent research group who appeared to confirm the legitimacy of the underlying investments even if they did not describe them in overly glowing terms.
It will take years for the funds to be fully investigated and for the courts to determine who was at fault and where to lay blame. Who knows what went wrong here?
In other similar past cases, I can say these sorts of losses are usually due to overly confident directors either lending funds to themselves and then not repaying them or simply investing funds into dud investments.
In this case, one of the directors for example used the funds money to spend $548,000 on a Lamborghini so he could drive it around town. It’s now worth about $350,000.
Another director oversaw an ‘investment’ of $31 million in a craft brewery Fox Friday he partly owned. That business is now in liquidation. There will be many more stories like these.
The extent of these excesses and dubious investments means it is unlikely if very much money will ever be returned to investors if any is returned at all, particularly as the liquidators have already charged $1.7 m in fees.