A Tale of Three Investments
Since I don’t work I depend upon my investments to provide me with the wherewithal for my modest lifestyle. That means that I spend a serious amount of time each week reviewing my investments and searching my heart to determine what I believe to be true about the world. However, sometimes I don’t get it right. This is a tale of three investments where I got it seriously wrong.
Corazon Capital Absolute Return Fund
One of my weaknesses is that I tend to take on more risk in my investments than I should. I really try to force myself to invest more conservatively than my gut tells me. One such conservative investment was the Corazon Capital Abolute Return fund. For years it has provided a nice, steady return of around 9% per annum – a bit better than cash, but not spectacular.
Then things went disastrously wrong. In 2008 it lost more than 30% of its value. Ouch!
The fund itself is a fund of hedge funds. (Yes, I know the charges associated with such funds are absolutely lunatic, but I hoped for a steady, risk free return.) The problem (in part) was that the fund invested in Weavering Capital’s Macro Fixed Income Fund. The fund was basically a fraud. Weavering apparently had the brilliant idea of not bothering to do any of the trading it was supposed to – rather it did a few trades with … its chief executive.
The FSA (that’s the Financial Services Authority to most of us, and the Fundamentally Supine Authority to Private Eye readers) is looking into things. I won’t be holding my breath. Personally I think there’s already enough evidence for the fund’s CEO to be strung up by his gonads until dead.
I do wonder, however, what Corazon was doing. Magnus Peterson (the fraudulent chief executive) had previously run another hedge fund into the ground. I paid a hefty premium so that Corazon can vet the hedge funds in which it invests. And yet it invests with someone like this scum bag.
To add insult to injury, Corazon decided to move a chunk of the fund into “Special Situations” class. This is USD denominated (and I loathe anything that is USD denominated), and can’t be sold. Over the coming years the investments will gradually be sold and I’ll get some money back. Still, not good enough.
And are Corazon offering to refund their pretty outrageous fees (for doing very little, and doing even that incompetently)? Uhhh … no! In fact, they can’t even be bothered to reply to my email.
To quote (selectively) from Gary Wiess’s “Wall Street Versus America” on the subject of hedge funds:
- They cause people to pay fees that would be considered highway robbery in even the most wack-a-doo mutual fundamentally
- They cause people to give their money to creeps they haven’t bothered to check out, the kind of people they wouldn’t trust to run out and buy then a sandwich, must less manage their investments
- They cause people to sign contracts that are so one-sided they would make a credit-card lawyer blush
Wish I’d read that first.
Arch Cru Investment Portfolio
Diversification is said to be the only free lunch in investment. Beyond the usual equities, bonds and cash, private equity is a fairly common diversifier. Arch Cru provided a seemingly easy way to access this asset class. About half the funds’ assets were private equity. It sat in the “Cautious Managed” sector (according to the IMA) and was described as “low to medium risk”. Sounded good to me. How wrong I was!
The fund was suspended from dealing in March last year. Eventually, in December, we were told by Capita that the fund had dropped in value 40%. Huh! Surely it’s more likely that the underlying investments were grossly overvalued and that investors were basically being conned into buying those underlying investments at grossly overinflated prices.
Capita (or “Crapita” as they’re known to Private Eye readers) have been as fundamentally supine as the FSA. The flow of information has been, at best, treacly. In my mind there’s no doubt that there has been a serious fraud here. But no one’s doing anything about it.
And to top it all, Crapita says that it will take 3-5 years to realise the fund’s (seriously depleted) assets.
And they say lightening never strikes twice.
The last investment I got seriously wrong is Carpathian – a property company that invests in retail properties in Central and Eastern Europe. It has a good portfolio of properties and is well managed. However, the share price plunged 90%. Double ouch!
The share price is fundamentally irrational. It’s trading at a 73% discount to NAV. (Though even if the share prices bounces back to reflect NAV I’m still going to be hurting.)
As John Maynard Keynes (allegedly) said:
“The market can stay irrational longer than you can stay solvent.”