Milford Asset Management has been under investigation by the Financial Markets Authority (FMA) for alleged market manipulation. We advised our Membership Clients on 2nd April 2015. Since this time, Milfords' mandate from the NZ Superannuation Fund has been suspended, and the FMA investigation has been ongoing.
Yesterday the FMA announced that a settlement had been reached with Milford in relation to a single traders 'market manipulation'. This involved the payment of a $1.1 million fine to the Crown and $400,000 as contribution to the FMA's costs during the investigation. The trader involved is on extended leave from Milford, and the settlement does not relate to that person.
The investigation was the first undertaken into a retail fund manager, and it is encouraging that a realistic business solution was reached with the settlement, rather than a lengthy process through the courts. While it would be nice to have 'case law' for future situations, the longer there is uncertainty in the financial markets, the longer it takes to rebuild investor confidence in our financial markets.
Moneyworks applauds the manner in which the FMA have undertaken the investigation. It is establishing the baseline for funds managers processes, systems and behaviour under the new regulation. While it is sad to see that there were deficiencies in Milfords processes, and that this 'market manipulation' activity was able to occur, it is important to remember that the New Zealand financial services market regulation is new.
Milford are a respected fund manager, with the people involved in running the company having strong track records. It is important that any fund manager have clear consistent processes and understand their responsibilities. This is one reason that Moneyworks are reluctant to use any fund manager that has no experience in the funds management industry, or who are 'start-ups' even if they do have experience in the funds management industry. Any 'newer' fund managers that we recommend are likely to be working with well established external fund managers to deliver their funds management solution, or are well known individuals to us, with a good level of funds under management before we start recommending them to our clients.
Milford have engaged PwC to assist in ensuring that their processes and systems are the best that they can be. They have established that they are lagging the market in 14/17 areas and are committed to improving these as quickly as feasible.
A number of our clients have Milford as a small part of their investment portfolios. We do not have any concerns about the ability of Milford to perform the role that we have appointed them to in your portfolio. However, we are concerned about the high level of fees that they charge for their services. The Milford Active Growth fund is closed to new investors, and for existing investors in our portfolios, we will be reviewing the degree of allocation to Milford Active Growth fund, as a part of our annual review to ensure that there is not a 'over exposure'.
More information on the Settlement.
The information provided in the media release from Milford and from the FMA and the settlement agreement indicate that this was one person who was involved in 'market manipulation'. The activity was picked up by the NZX systems and occurred from December 2013 until August 2014.
Further information from the media can be accessed here:
Milford to pay $1.5m following FMA Investigation - NBR
Milford Worker on leave after $1.5m paid in FMA Settlement - NZ Herald
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By Carey Church
