Rival fund managers are perplexed by the scale of the debt left by NWQ Capital Management, expressing surprise at the almost $20 million owed, including to four prominent Perth business figures.
Rival fund managers are perplexed by the scale of the debt left by NWQ Capital Management, expressing surprise at the almost $20 million owed, including to blue-chip Perth business figures.
A who’s who of Perth business names has been caught up in the collapse of Jonathan Horton’s West Perth fund manager, which was placed in the hands of liquidators earlier this month after creditors in Queensland and Victoria sought to wind-up the company.
The winding-up action followed NWQ’s suspension by the financial watchdog from providing financial services or raising money for two of its funds in August last year.
Private entities associated with high-profile business leaders such as Tim Ungar, Craig Carter, James McClements and Nick Brasington are listed among NWQ’s creditors, which hold debt notes, convertible notes or were fund investors with guaranteed capital returns.
The creditors are revealed in a report on company activities and property lodged with the Australian Securities and Investments Commission earlier this month by liquidator Glenn O’Kearney and signed by Mr Horton.
According to the documents, entities associated with Mr Ungar were owed more than $5.4 million, entities associated with Mr Brasington were owed more than $1.2 million, entities associated with Mr McClements were owed more than $735,000, and entities associated with Mr Carter were owed almost $360,000.
Business News has contacted local fund managers as well as some investors and creditors to understand the scale and duration of the problems at NWQ.
Speaking anonymously, fund managers cannot understand the size of the debt.
Typically, fund managers are relatively low overhead operations, Business News has been told, especially the style of fund operated by NWQ: a fund of funds that requires less analytical grunt than a fund invested directly in equities.
NWQ, mainly through its flagship Fiduciary Fund, invested in a limited number of Australian hedge funds to achieve gains that were not subject to the volatility of typical share market investments.
However, NWQ did have a high-calibre investment committee, including former Reserve Bank of Australia governor Glenn Stevens, who served six years until March last year and whose private company is listed as a trade credtor.
Other investment committee members listed in August last year were: Mr Horton; former Deutsche Bank executive Stephen Kennedy; former GESB chief investment officer Sharon Hicks; and NWQ managing director research and former Regal Funds chief operating officer Stephen Baldwin.
Those with some knowledge of the business suggest the funds management platform it used was very good but also came at a premium. And NWQ’s efforts to expand offshore were also likely to be costly.
Another reason a typical fund manager could need additional money is to invest directly in its own funds as a show of faith to investors. A general partner commitment in fund management parlance is a small percentage of funds invested alongside their customers.
“The standard is one per cent,” one fund manger said.
“You take that out of operating surplus, it is not good business practice to borrow it.”
NWQ had claimed as recently as 2018 that it had about $250 million in funds under management. A 1 per cent investment at such levels would have equalled $2.5 million, well short of the almost $20 million owed.
And the market perception was that NWQ’s fund size was exaggerated, despite a constant stream of news over the years highlighting new fund launches and a US expansion strategy.
Most in the market believe in recent years NWQ was managing around $100 million at best, with anecdotal evidence mounting that it did not get substantially beyond that despite a strategy to grow the business, underpinned by third party investors.
A figure of $100 million is not viewed as sustainable for a fund management business.
Furthermore, aside from potentially high operating costs for the nature and scale of the fund manager, some people with knowledge of NWQ’s inner workings believe Mr Horton’s own expenses, including salary and the lease of a luxury vehicle, understood to be a Bentley, were excessive.
In fact, some shareholders who spoke to Business News raised this behaviour as a red flag that prompted their exit. In these cases, those positions were held many years ago, suggesting the business’s management may have been a long-term issue.
Furthermore, some investors have highlighted problems that became obvious in 2021, soon after the markets disruption induced by the pandemic, which cost them dearly.
It may not be surprising, then, that an effort late last year by Mr Horton to restructure the business and raise capital to pivot NWQ from a fund of funds to an advisory operation failed.
At about the same time, Mr Horton sold his Dalkeith home for more than $4.2 million.
In writing to investors in April regarding the pivot’s failure and the impending liquidation, Mr Horton sheeted blame on events of the past 12 months, namely:
- a changed view on asset value treatment which led to ASIC suspending NWQ’s licence;
- a significant redemption from an institutional investor;
- the failure of noteholders to reach consensus on a plan to convert debt into equity; and
- a small number of noteholders demanding repayment.
“After fifteen years of building NWQ to play an important role in the portfolios of many investors, the series of events over the past twelve months that have required the dismantling of the business and resulted in financial losses for note holders has been personally devastating to me,” Mr Horton stated in his update last month.
He has not responded to requests for comment.
Rival fund managers that spoke to Business News said the collapse of NWQ would be most concerning if investors in the firm’s various funds were creditors, because they were supposed to be protected by arm's-length entities.
However, in the latest document lodged with ASIC there are almost $1.6 million in creditors in a list headed: NWQ Global Markets Fund Proposed Investor Remediation.
In speaking to some of those investors, Business News was told that, despite being sold as a product that reduced risk and made money in volatile markets, they had experienced losses of up to 40 per cent as the pandemic rattled markets.
In 2021, the investors said NWQ acknowledged that the model had failed them but sought to keep to investors in the fund by offering a guaranteed return of their original capital plus interest equivalent to the Reserve Bank of Australia’s cash rate for a period that was due to end in the middle of last year.
While the remaining funds did recover somewhat, most investors who stayed in NWQ Global Markets Fund appear to have lost more than 25 per cent of their original capital. Despite the promises two years earlier, the guarantee to make good losses and pay interest never eventuated.
One of the entities on that list of creditors, Stylianou Family Pty Ltd as Trustee for the Stylianou Family Superannuation Fund, is owed almost $50,000. That entity, based in Melbourne, was the second creditor to petition the Federal Court to appoint a liquidator in April.
The first such legal action, in March, was taken by Herron Holdings as trustee for the Herron Family Trust, which is owed almost $200,000, including almost $50,000 interest on its debt note.
The interest is understood to have been capitalised after NWQ failed to meet the terms of the notes.
Business News understands that further litigation may follow NWQ’s collapse, led by note holders whose fortunes may have fared less well than fund investors afforded the protection of third party administrators and responsible entities.
ASIC records show some of Perth’s most astute investors backed NWQ as equity holders in its early days, and it is understood some of those holdings were quite profitable.
Mr McClements, co-founder of Resource Capital Funds, became a significant equity investor in NWQ and was on the board from 2008 to 2012. He was viewed as an early and long-term backer of Mr Horton’s project.
Navitas founder Rod Jones took a stake through his family office Hoperidge and his representative Jon Biesse was on the board form 2015 to 2017.
Coolabah Ventures, a private company controlled by Sydney-based investors the Joye family, had a stake, as did Bright Decade, linked to Mr Brasington, from PwC and a past Western Australia managing partner.
Another past stakeholder was Stuart McClure, who was NWQ’s managing director from 2015 to 2017, after 18 years with Macquarie Group.
None were still shareholders when the business collapsed and, in most cases, had exited their equity positions years ago.
The only remaining equity holder outside Mr Horton’s interests is Ballast Holdings, something of an odd investor in the NWQ business given the blue-chip names otherwise involved.
As early as August 2016, Ballast Holdings disclosed its minority stake in NWQ via a document called the financial services guide of Ballast Financial Management which disclosed that, then, it was part of the Ballast Group of companies that all had common ownership arrangements through Ballast Holdings.
Wayne Blazejczyk, a director of Ballast Financial Management from 2002 to October 17 2019 was an NWQ director for two years ending October 31 2019.
In January 2020, ASIC banned Mr Blazejczyk from providing financial services for five years, saying the Perth adviser had failed to meet best interest obligations when providing advice on self-managed super funds.
