London City Equities Limited (ASX:LCE) - Shareholder Queries Validity of Imperial Pacific Asset Management's Australian Financial Services Licence (AFSL)
Announcement posted by Advocate Strategic Investments Pty Ltd 28 Oct 2016
The Company Has Serious Questions To Answer About The Conduct of its Portfolio Manager and the Validity of it's Australian Financial Services Licence - Something ASIC Needs To Look At
It seems to Advocate, a London City Equities Limited (LCE) shareholder, the AFSL under which Imperial Pacific Asset Management Pty Ltd (IPAM) manages the LCE's multi-million dollar portfolio may be in serious breach of Australian Securities & Investment Commission's (ASIC) licence conditions.
LCE's portfolio manager IPAM, was also responsible for a $7 million dollar loss resulting from a failed investment in a company called Penrice Soda Limited. The manager may have also commingled monies belonging LCE members into an unauthorised investment trust belonging to the portfolio managers parent Imperial Pacific Limited (IPC) which is listed on the ASX (ASX:IPC).
Advocate has grave concerns about the management of LCE's shareholder funds.
Advocate has asked to see the portfolio management agreement between LCE and the manager IPAM. Peter Murray the Chairman of LCE told Advocate it was none of their business.
Name: IMPERIAL PACIFIC ASSET MANAGEMENT PTY LIMITED
Licence Number: 288318
Status: Current
ABN: 41 000 034 293
Commenced: 20/06/2005
Licence Conditions 20/06/2005
Does not allow Portfolio Management
1. This licence authorises the licensee to carry on a
financial services business to:
(a) provide general financial product advice only, for
the following classes of financial products:
(i) deposit and payment products limited to:
(A) basic deposit products;
(ii) derivatives;
(iii) debentures, stocks or bonds issued or proposed
to be issued by a government; and
(iv) securities;
to wholesale clients.
Mr. Peter Murray
Chairman
London City Equities Limited
Level 4, 20 Loftus Street
Sydney 2000
NSW
C.c. The Auditor Mark O'Connor Cutcher Neale
18 October 2016
LONDON CITY EQUITIES LIMITED (LCE) CORPORATIONS ACT 2001 - SECT 250PA
Written questions to auditor by member Advocate Partners Pty Ltd
We submit the following questions to the auditor relating to the content of the auditor's report
regarding LCE's 2016 financial report and the conduct of the audit of the 2016 financial
report.
1.0
Note 17(3)(d) to the financial report states:
"there is a formal management agreement in place with Imperial Pacific Asset Management
Pty Limited, a subsidiary of Imperial Pacific Limited. This was approved by shareholders on
16 November 2004 and provides for, inter alia, a term of 15 years from 1 July 2005 and fees
of 1% of the value of the Portfolio, together with possible performance fees of 15% of any
gain achieved above the performance of the S&P ASX 300 Accum Index movement. The total
fee payable during 2016 was $58,902 (2015 $46,696)".
Questions:
1.
While the note discloses how IPAM is remunerated under the Management
Agreement, has the auditor checked to ascertain what (if anything) IPAM actually
does pursuant to the Management Agreement?
2.
IPAM is the holder of AFSL no. 288318, allowing it to provide general financial
advice only. IPAM is not permitted by its AFSL to provide, for instance,
investment management services. If IPAM is not permitted to provide investment
management services, what does it do to justify the payment to it of $58,902 in
2016 (which is 141% of LCE's net profit in the same year)?
3.
What is IPAM's mandate under the Management Agreement?
4.
How does the mandate compare with the terms of AFSL no. 288318?
5.
Is IPAM conducting its business within the terms of AFSL no. 288318?
6.
If it is, precisely what service does IPAM provide to LCE?
2.0
Notes 20 and 24 refer to LCE's failed investment in Penrice Soda in 2008 and
continuing investigations into the "scope for recovery" of the money lost (about $6-
7 million).
Questions:
7.
Given that the investment took place about 8 years ago and limitation periods
are generally no more than 6 years, has the auditor checked to
ascertain whether LCE has advice that there is scope for recovery?
8.
The notes claim that investigations may lead to legal action against Penrice and
others. If limitation periods have expired, this statement would seem to
be incorrect and misleading. Has the auditor checked whether in fact the
investigations are continuing? Has the possibility of legal action been verified by
the auditor?
9.
Note 20 is headed "Contingent Asset". Given that the losses on the failed
Penrice investment were about $6-7 million, collection of this contingent asset
would approximately double the net assets of the company. Collection of the
asset is obviously highly material and critical for investors. What has the auditor
done to ascertain collectability of the contingent asset?
In the company of shareholders in attendance at the Company’s forthcoming AGM
we look forward to receiving the Auditors answers on the questions raised.
Yours sincerely,
Michael de Tocqueville
Chief Investment Officer
AFSL Responsible Manager 224560
About ASI
ASI is a Melbourne-based independent investment management firm that provides institutional and sophisticated investor clients with customised alternative investment strategies. The firm’s senior investment team uses its unique, company-specific, value-oriented investment approach, with a strong focus on equity special events and credit opportunities. ASI’s approach is focused on the preservation of capital through extensive and rigorous investment analysis on a position and portfolio basis. ASI is the manager and adviser to the Advocate Partners Constructivist investment strategy. Shareholder constructivism is about advocating an owner’s perspective in relation to how a public company is governed and operated, in order to build the conditions necessary for its equity value to appreciate.
Disclaimer
ASI is the manager of the Advocate Partners portfolio which holds London City Equities Limited shares. As a Constructivist investor, Advocate Partners seeks and attempts to construct a more efficient company through effective engagement or suggest ways to collegiately build or rebuild shareholder value.
This Press Release has been prepared by Advocate Strategic Investments Pty Ltd ABN 77 101 691 598 | AFSL 224560 (ASI) for the information of shareholders. This release has been prepared from information available to ASI on the date of release and from publicly available sources. ASI has not verified this information and no responsibility is accepted for the accuracy, currency or completeness of this information. This release must not be taken to be financial product advice in respect of shares in the Company.
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