The $400m fraud suspect awaiting his fate
How Penrich went from niche darling of financial world to the centre of a nine-figure SFO inquiry
Kelly Tonkin, for a while at least, was master of the universe. The Christchurch-born economist, who made a name for himself in top-end-of-town financial circles in both New Zealand and London, was the founder and chief executive of Penrich Capital.
Penrich had billed itself as an investor that understood foreign exchange and interest rates better than the market, and pitched its flagship Global Macro Fund to wealthy clients as an alternative investment — in currencies and bets on interest rates in Norway, Sweden, New Zealand and Canada — that was uncorrelated with equity movements.
In February, nothing seemed amiss: investors in Penrich had apparently been earning doubledigit annual returns, and withdrawals were still being processed on time and in full. The company was sending out economic updates several times a week.
But something shocking was uncovered on March 10.
The Macro Fund was frozen and a note to investors said a “significant discrepancy” had been uncovered.
Investors began scrambling to try to account for millions invested, liquidators were appointed to Penrich’s branches in Christchurch, London and the Cayman Islands, and Serious Fraud Office (SFO) investigators started circling.
The Weekend Herald caught up with Tonkin, 51, this week at his home in Cashmere, Christchurch, where he was wearing slippers while watching daytime television.
He declined to answer detailed questions, citing the ongoing SFO probe: “I really don’t want to get myself into trouble — even more trouble — if I’ve signed something saying I won’t talk,” he said.
“I haven’t been charged with anything, yet.”
In a later phone call, Tonkin said he was now unable even to afford a lawyer to act in his defence, and declined to blame anyone else at Penrich — which was directed by a suite of investment bankers with big-name resumes — for the disaster that has unfolded.
“There is no one else, there’s just me,” he said.
The SFO, for its part, declined to comment: “The investigation is ongoing. The SFO can’t make any comment about persons of interest in the context of an ongoing investigation.” Monthly investor statements obtained by the Weekend Herald show Penrich was reporting its Macro Fund made returns of 13.9 per cent since inception in 2004. It is understood financial accounts for the fund for the year to December 31, 2016, provided to investors showed a claimed US$253m — then equivalent to around $400m — of client funds were under management.
But what was really happening at Penrich — and the scale of the financial mess — is today shrouded in murk. The Weekend Herald understands the audit report for those 2016 accounts — on BDO Cayman letterhead — appears to have been forged.
BDO in the Caymans referred the Weekend Herald to Cayman Islands liquidators R&H Restructuring when approached with questions about whether they had provided any auditing services for Penrich.
Liquidators in the United Kingdom and New Zealand have said Penrich entities there held no investor funds. R&H, liquidators in the notoriously secretive Cayman Islands where the fund proper was housed, declined repeated requests for comment.
Tonkin, for his part, also declined to address the audit report for the 2016 accounts, confirming it was a focus of the SFO’s criminal
investigation which he was forbidden to discuss.
The scale of global, and local, losses is unclear, but given that the fund steered clear of the retail market — and associated regulations — those exposed are chiefly high net worth individuals and institutions.
The Weekend Herald understands the $1m in charitable investment funds connected to Auckland private school the Diocesan School for Girls represents only the tip of the iceberg and local exposures run into at least the tens of millions.
Adding in potential global losses, Penrich seems on track to eclipse Wellington’s $115m Ross Asset Management ponzi scheme and become New Zealand’s largest-ever fraud.
The local fallout has already started raining down. Several clients of boutique investment firm AMA Capital have found themselves Penrich creditors.
AMA founder Angela Anderson, who said she’d also personally invested in Penrich, was adamant there were no red flags before March and pledged to return commissions from the fund to investors and help lead recovery efforts.
“I will not finish this until every stone is [turned],” she said.
AMA strategist Campbell Millar said he had reverse-engineered Penrich’s claimed returns each month as they came in, based on positions it said were being held, and found no significant discrepancies.
Millar, with decades of experience at the likes of Goldman Sachs, said of Penrich: “I’ve never seen anything like this.”
Penrich documentation describes local firm OMF as the Global Macro Fund’s “prime broker”.
Paul Webber, OMF’s manager of foreign exchange, confirmed Penrich was a client but directed further questions about the firms’ dealing with Tonkin to his chief executive Matthew Blackwell.
Blackwell did not return repeated requests for comment.
As for the man at the centre of it all? Tonkin grew up in Christchurch and attended Cashmere High school, where his later career would see him feted as a “financier and environmentalist” by his school alongside other notable alumni including Guyon Espiner and Bic Runga.
He graduated with an honours degree in economics from the University of Canterbury before working as an economist at Treasury and then Bankers Trust, where he headed the equities unit, making regular media appearances giving expert economic and financial commentary.
One senior Auckland financial figure, who worked with Tonkin in the 90s and had caught up with him regularly until just a few years ago, was shocked at recent developments.
“As I’ve become aware of the story here, I’d have to say my initial reaction was ‘What the ***?!”’ he said.
“I knew Kelly really well and he honestly would be one of the last people I would have thought could have done this. It makes you question your own judgment.
“Kelly, at least the Kelly I knew, had a real code of conduct and he was incredibly ethical. In the late 90s a lot of people would cut corners on those things: Kelly was not one of those.”
Not that Tonkin was without flaws, the source said: “The one thing about Kelly is he had strong convictions and he’d often hold a position beyond when he should have.”
Tonkin moved to London in 1999, working at the once-prominent, but now late, investment bank Lehman Brothers before starting Penrich in
2004.
He returned to New Zealand in
2014, when there were still no signs anything was amiss, and he became a community fixture: nominated as regional coach of the year at NZ Football’s 2019 awards for his work with Cashmere Technical; and being appointed late last year to the Board of Trustees for Cashmere Primary.
He was less publicly prominent than he was during his time in New Zealand during the 90s, but he was still in the news. In 2017 he jointly authored an opinion piece for Stuff on the need to raise the retirement age.
“Eventually the current scheme becomes unaffordable,” he wrote.