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.

Carpathian IT
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.”

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3 comments so far

  1. George on

    I think you should have been a bit more proactive an vetting your investments. The last one blew me away – property in central and eastern Europe; might as well cash a $10,000 check from a Nigerian man contacting you via. e-mail.

    • apostcardfromthailand on

      I guess that from the US of A you don’t get a good picture of what Europe’s like. The Eastern European economy is growing fast with a rapidly emerging middle class. The investment is in solid bricks and mortar, rented out to well-established companies. In fact, Carpathian paid a dividend of 22.5% earlier this month (and there’s another dividend due in the middle of this year). It’s not that this is a bad investment (in my opinion) – it’s that the market is fundamentally irrational and driven by fear.

  2. Bonnie on

    I thought if I searched long enough I would locate this Corazon scandel. Thanks for your blog! There is not alot out there. What info I have located:
    1. PriceWaterHouse Coopers was assigned the role of liquidator of Weavering in 2009
    2. Today I located a contact within PWc whom I will phone tomorrow to ask the following:
    a. Has the liquadation of Weavering been completed?
    b. If so: How much and To whom do the funds go?
    c. Who is the insurer of either Weavering AND Corazon?
    NOTE: If you have a question that you would like to include let me know and I’ll tack it onto my list.
    3. Part of the Collin Stewart purchase of Corazon was that Corazon had to get some sort of insurance (third party? indemnity?) incase investors held them accountable!

    Corazon’s website is no longer up, Great! I did phone Collin Stewart* and spoke to a woman in Compliance. She wanted to have client details inorder to do provide any further assistance. I didn’t want to provide these.
    Collin Stewart Guernsey: T: +44 (0) 1481 712889

    I’ve contacted Guernsey Financial Services and was directed to the following link http://www.gfsc.gg/content.asp?pageID=106&menuOpen=3&submenuOpen=3.5
    I was told that Corazon as a member of GFServices had an obligation to operate under the Licensee Rules (see the link for was these are.

    The following provides you will further info:

    The group (Collin Stewart-brokerage) added on Thursday it has acquired Guernsey-based Corazon Capital for an initial 1 million pounds cash, and a deferred share payment of up to 6 million pounds, expanding its wealth management arm, which accounts for roughly half its profit. Ref: http://www.reuters.com/article/idUSLDE62G0QR20100318

    ‘The primary problem in Weavering’s case was that the main counterparty in the interest-rate swap was essentially controlled by itself (despite the legal fiction of different entities in different jurisdictions). It seems that once the firm was hit with a wave a redemption requests all at once, Weavering notified investors that it was “urgently” investigating the position. It should have been a fairly short investigation – since it was looking into itself.’ Ref: http://hedgefundoperationalduediligence.com/weavering-capitals-downfall-idea-trade/


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