City Financial has suspended dealing in its Absolute Equity Fund following a spike in redemptions as the firm battles to secure a lifeline, Wealth Manager can reveal.
In a letter to investors seen by Wealth Manager, chief executive Robert Hain said a temporary suspension of dealing in the City Financial Absolute Equity fund was in the best interests of investors.
'The only change is that the fund is not open for dealing in units for a temporary period,' Hain said.
'We review the situation daily and will notify all investors as soon as we can to announce that the fund has re-opened for dealing.'
Dealing was suspended on 4 March, around a fortnight after City Financial said it intended to appoint an administrator on 22 February.
The letter indicated that, after the news was picked up by the press on 26 February, the fund was hit by a significant increase in redemptions.
'City Financial’s status has no direct impact on the fund, the circumstances... resulted in a significantly increased level of client redemptions,' the letter read.
The fund was able to fulfil redemptions received from
26 February to 1 March.
Outflows then reached a level at which the authorised corporate director believed would cause significant loss of value to both the redeeming and remaining investors if processed, however.
According to regulatory filings over the last week, the fund has exited a number of major positions.
According to the fund's most recent factsheet, the fund held £183 million in client assets at the end of January.
The managers reported that market volatility between Christmas Eve to the end of January had increased the fund's risk, resulting in a dramatic increase in gross market exposure. This was subsequently reduced 'to under 300%', by early February.
The fund is languishing at the bottom of its peer group over the 12 months to the end of January on a 25.9% loss, ranking it 94th out the 96 funds in the sector.
According to its factsheet, it has returned 10.2% since its inception in 2008.
'We consider that to raise liquidity at any cost i.e. at diminished value of assets, is not in the best interests of all shareholders,' Hain said in his letter.
'A considered approach to raising liquidity is more appropriate. The fund itself is still operating in that it can still buy and sell underlying securities and will seek to invest in opportunities as usual in order to
meet its investment objective whilst raising liquidity to meet those redemptions received in an orderly manner.'
City Financial filed its notice to appoint an administrator after assets under management fell from $3.3 billion (£2.5 billion) to $1.2 billion in 2018.
In an email seen by Reuters, Hain said the firm was working with an advisory firm to review its options, saying it had held 'a number of positive discussions'.
Accounts for the business for 2017 show losses before tax mounting to £16.7 million, surging from £1.4 million in 2016, as costs ballooned from £25.6 million to £40.5 million.
They also detailed two loans amounting to a combined £3.5 million, repayable on demand and carrying an interest rate of 12%.
A subsequent report linked the loans to Hain, who owed the business £965,150 and vice-chair Andrew Williams, who owed it £2.8 million.