Hefty fine for MetCI

Nearly four years after the Third Circle MET Target Return Fund lost nearly two thirds of its value in just two days of trading in December 2015, the Financial Sector Conduct Authority (FSCA) has ended its investigation.

The regulator concluded that, as the management company responsible for the fund, MET Collective Investments (MetCI) did not meet its obligations.

“The FSCA found that MetCI did not have proper risk management processes to manage and exercise proper control, oversight and governance over the fund,” the regulator noted.

“It also found that the extent of the fund’s exposure to derivatives was contrary to the prescripts of the relevant financial sector laws as well as the fund’s own investment policy statement and mandate.”

Moneyweb broke the news of the fund’s losses in early 2016. It soon became clear that Third Circle had been employing extensive derivative structures that the fund was unable to unwind in a bout of market volatility triggered by the axing of then-finance minister Nhlanhla Nene.

MetCI conducted its own investigation, finding that the way Third Circle fund manager Ian Lane had structured the fund went “beyond industry practice”. It removed them in July 2016.

MetCI still insisted that while it felt the risk exposures in the fund were inappropriate, the portfolio was compliant with regulation. The FSCA has now concluded they were not.

“MetCI was found to have breached the exposure limits, in that the fund was predominantly exposed to derivatives and it did not have the cover in place,” it stated.

MetCI did acknowledge shortcomings in its risk management procedures and accepted some liability.

Theo Terblanche, executive head of retail investments at Momentum, says the company disagrees with the extent to which the FSCA has found against it.

“We will be appealing the decision,” he said.