Barak Fund whistleblowers saw collapse coming
Right after South African financial firm Barak Fund Management’s request for approval was announced to restructure its $ 4 billion fund, it was revealed that employees had already sounded the alarm on asset valuation and the quality of guarantees. Barak has 54% of its assets stranded in illiquid investments across Africa. The company says its compliance officer found no wrongdoing when allegations of impropriety were investigated. The fund’s original auditors, PricewaterhouseCoopers, resigned before the end of its 2019 audit and the new auditors are still delaying signing the financial statements. – Melani Nathan
Whistleblowers spark investigation into Barak trade finance fund
By Nishant Kumar
(Bloomberg) – Auditors investigate whistleblower complaints about Barak Fund Management as company seeks approval to restructure $ 1 billion trade finance fund that leaves investors stuck with hard-to-sell assets .
Some employees filed complaints with the Mauritius-based investment firm last year, according to people familiar with the matter. Two expressed concerns about the quality of collateral attached to some loans it has made, while another cautioned against overvaluing some assets, said the people, who asked not to. be named because the details are private.
The cabinet acknowledged receiving three complaints, including two relating to “allegations of irregularities”, in an email response to the questions. The concerns were raised long after the alleged events related to the complaints took place and days after the company began a dismissal process in April last year that affected two of the employees, the company said. .
“The whistleblower’s allegations have been reviewed by the fund’s compliance officer, and a second review by an external audit firm will soon be completed,” a spokesperson for Barak said in a statement. “No wrongdoing, corruption, fraud or criminal activity or any other matter affecting the financial statements of any of the funds has been identified.”
Barak banned investors from withdrawals from his flagship fund last April because much of his holdings became difficult to value. The company, which finances cash-strapped businesses across Africa, is now looking to restructure the fund by turning its illiquid assets into new vehicles. Barak told clients last month that the strategy’s goals are “no longer reasonably achievable” and that it seeks to gradually realize the assets, in a document sent to investors and viewed by Bloomberg.
Barak said in a separate statement last week that a “high percentage” of investors had expressed support for his restructuring plan and expressed confidence that it would be approved.
Catherine McIlraith, a member of Barak’s independent board, also acknowledged whistleblower complaints and reiterated that they were received some time after the alleged events, in an email response to questions. Investors were not made aware of the concerns as the board was confident that no further communication was needed, she added.
“Investor fairness is the primary driver of the process, and we cannot undermine the restructuring process by commenting on the state of valuations or guarantees,” said McIlraith.
PricewaterhouseCoopers resigned as auditor of Barak’s trade finance fund last year, before completing its 2019 audit, Bloomberg reported last week. While at least one of the whistleblowers had also complained to PwC, it is not known whether this was related to the company’s resignation, the people added. A spokesperson for PwC declined to comment.
The firm’s new auditor, Macintyre Hudson, has further delayed the signing of the fund’s 2019 financial statements. He previously planned to complete the already delayed process by the end of February, according to the restructuring document sent out earlier this month.
Macintyre Hudson “has not made a firm commitment as of this date and we understand that the volume of work involved has exceeded their initial expectations, resulting in a slight delay,” Barak’s spokesperson said in a separate statement last week. last.
Barak’s investment problems are the latest sign of trouble in trade finance. London-based Greensill Capital recently filed for administration after key funders pulled out of the supply chain finance firm over concerns over valuation of its assets. The events highlighted potential liquidity problems for funds offering stable returns through opaque investments in unlisted assets.
In 2019, another whistleblower alleged a potential conflict of interest over Barak’s investment manager, Prieur du Plessis, who allegedly received money and the use of a motor vehicle from an entity. related to a coal business customer, two of the people said. Barak investigated and resolved the case after issuing a warning to du Plessis, who said the deal was the repayment and guarantee of a personal loan, one of the people said.
The allegation, raised with a Barak employee, was made by someone who was never employed by or related to Barak, the company said in its email response, without confirming any details. The complaint, which referred to events that occurred between 2014 and 2017, “was raised in May 2019, was reviewed by independent legal counsel and was resolved in June 2020 on the basis that it there was no evidence of wrongdoing or fraud, ”he said.
Barak, launched by Jean Craven and du Plessis in 2009, rapidly increased its assets and investments to manage more than $ 1 billion in 2018, as cash-strapped companies sought other sources of capital after the crisis financial. The fund never experienced a month of decline until last March, when the pandemic shut down economies around the world.
Some well-known investors backed Barak, attracted by the prospect of stable returns from providing capital to small and medium-sized businesses.
The Botswana Public Officers Pension Fund, Botswana’s largest pension fund, had invested 1.36 billion pula ($ 123 million) in the company as of March 31 of last year, according to its latest annual report. The pension fund’s CIO did not respond to a request for comment.
IFC, a member of the World Bank Group, provided a $ 60 million loan to Barak in 2018 to finance trade and commodities for businesses in Africa. The loan was repaid last year, according to an IFC spokesperson.
Barak’s illiquid investments represent more than half of the fund’s assets, in sectors such as coal mining, consumer goods and fertilizer production, according to the restructuring document.
Investors keen to stay in the fund will be moved to new products, the spokesperson said in the statement.
“Those who do not wish to continue will receive an upfront cash payment representing the portion of the underlying investments that are liquid and easily capable of being accurately valued, with the remainder to be released to investors on time. “
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