Simon Treacher quits BlueBay Asset Management over alleged changes to figures

Date: Friday, November 28, 2008
Author: Patrick Hosking and Robert Lindsay, Times Online

The manager of a £900 million Mayfair hedge fund has quit after being accused of making unauthorised changes to its figures during a stampede of clients demanding their money back.

Simon Treacher has resigned from BlueBay Asset Management after breaching internal valuation policy, the company said yesterday. Shares in BlueBay crashed 30 per cent as it also announced that it was closing Mr Treacher's fund, the BlueBay Emerging Market Total Return Fund.

“The breach was recent, limited and resulted in no material impact on the net asset value of the fund, or of any other funds managed by the company,” BlueBay said. The alleged incident has been reported to the Financial Services Authority.

Last night Mr Treacher was still listed as “active” in the FSA's register of authorised City workers. The fund, which takes up and down bets on emerging markets bonds, has collapsed in value by 53 per cent so far this year, BlueBay said, and would be wound down.

BlueBay blamed a deterioration in financing and liquidity conditions: “With such conditions likely to persist, the fund is not in the company's view or that of the fund's board, at this point viable as a standalone strategy.”

Mr Treacher is alleged to have made small unauthorised adjustments to the numbers used to calculate the net asset value of the overall fund but the changes were too modest to make any difference to the overall net asset value figure.

He is understood to have made no personal gain from the alleged breaches, which were picked up by internal systems. The breaches were described as “pretty baffling” by one source.

“The company would like to stress that there is no connection between the breach concerned and either the recent losses incurred on the fund or the intention to wind the fund down,” BlueBay said.

Shares in BlueBay fell 30p to a low of 70p. The company was floated at 300p a share two years ago, when the co-founders, Hugh Willis, the chief executive, and Mark Poole, the investment chief, each cashed in £30 million of shares.

Units in the problem fund have slumped in the past month as clients demanded their cash back. The fund was also being hit, it is understood, by banks demanding more collateral to support its short positions.

BlueBay gave warning that without fees from the fund, profits would be below expectations. Credit Suisse, its house broker, halved its earnings per share forecast to 11.7p and gave warning that the “negative halo” around the closed fund would put investors off other BlueBay funds.

BlueBay's strategy has been to take both long and short positions in bonds, using client cash and bank debt, exploiting the rapidly growing European bond market.

However, Iceland essentially going bankrupt and demands for IMF bailouts from countries such as Hungary have created extreme volatility in bond prices.

Mr Willis said: “While we regret these developments, we should like to stress that they do not affect in any way our commitment to emerging markets, which remains a core area of specialisation for the company. Nor do they affect our corporate strategy of further developing our leading specialist credit franchise at a time of great pending opportunity in the asset class.”