Researchers quiet on investigation

New Zealand investors and advisers relying on the country’s research houses won’t be warned about the market manipulation investigation being conducted into Milford Asset Management.

Tuesday, February 24th 2015, 6:00AM 3 Comments

by Susan Edmunds

Milford confirmed it is working with the FMA in respect of a market investigation. It said the investigation concerns an individual trader employed by the firm and certain specific trades.

"The investigation does not have any implications for client funds and has no impact on the day-to-day operations of Milford. Milford looks forward to completion of the investigation."

It is believed that the trades in question were conducted about a year ago. They came to the FMA's attention from the NZX.

Morningstar said it had not included any information about the FMA investigation in any research or publications for investors or the financial services industry.

“The allegations are still subject to ongoing investigation by the regulator. We have contacted Milford Asset Management and have received formal written confirmation that the investigation does not have implications for client funds and has no impact on the firm’s day-to-day operations. We have therefore decided to leave our existing ratings unchanged.”

Fundsource, now Morningstar’s only major competitor, was also not making reference to the investigation.

Sam Stanley said: “We just leave it up to the parties involved, which is FMA and Milford.”

Although the investigation was sparked by the NZX, which owns Fundsource, Stanley said he had no extra insight into what was happening. “We have really clearly defined parts of the business. The side that would get involved in that is the compliance, regulation and supervision side and is completely separate to the rest of the organisation. We would never know anything about any investigation of the details of it. It’s business as usual as far as Milford is concerned from our perspective.”

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Comments from our readers

On 24 February 2015 at 10:36 am winstonkey said:

So lets follow the logic here. "we have received a letter that there are no implications for client funds." Yet the allegation is manipulated prices. How can that not affect the unit price, which clearly has an implication for clients funds? If the price is artificially higher - that is bad for new investors, if it is artificially lower that is bad for people leaving the fund. Plus the marketing impact of higher returns and possible performance fee calculations.

Am I missing something here? Seems like the research houses are.

Then there is this:

http://www.stuff.co.nz/business/industries/66540643/milford-asset-share-trading-probe-expands-sources-say

On 24 February 2015 at 2:14 pm Pragmatic said:

The interesting thing about speculation is that it is often devoid of fact. Perhaps it's worth awaiting the outcome of the FMA investigation (who supposedly have access to all of the facts) before sentencing this entity.

On 24 February 2015 at 3:48 pm Craig Simpson said:

Innocent until proven guilty Winstonkey.
For the research houses I imagine it is business as usual and they will address any issues once the facts are known and details are released.

I am intrigued to know how the FMA would go about ensuring investors (current and past) were appropriately compensated if it transpires there was an indiscretion. Trying to unwind unit pricing, transactions, fee and tax calcs would be an absolute nightmare for all concerned.

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