Wednesday, February 17, 2010

Huljich funds and stock pumping


Adolf has drawn my attention to the Huljich fund. As of this morning I had never heard of it but he maintains they have done markedly better than their opposition in offering Kiwisaver returns. That would appear to be on the basis of
misrepresentation. When they started their funds they pumped the returns so that their investment statements would be able to show an excellent return in comparison to other funds. Evidence this extract from the Huljich investment statement dated 9 September 2009. If you cant see the small print Huljich have super high returns whilst their competitors are in the red. If you believe that is real I have a bridge to sell you.



As an aside I am gobsmacked by the paucity of information allowed in the investment statements and annual report. Not even a set of financial statements in the investment statement(only annual report) or a disclosure of current holdings in either. Given the political importance of ensuring that Kiwisaver investors are not subject to breach of trust I would have thought they would be obliged to disclose their actual holdings in the same way as the Cullen Fund. That would ensure that competitors and the public are able to validate their returns against independent data rather than simply being forced to rely on pretty graphs on a website.

The conservative fund touts a return to Sep 2009 from inception of over 20% per the graph above. 16% for the comment extracted from page 6 their 16 page annual report to March 2009 below. 16 pages of which 4 contain any valuable information rather than just the type of fluff below
“Huljich has been a standout performer showing positive returns over the last year in all funds – conservative, balanced and growth – in a time when most of the market has been going backwards.” “The secret to his success – including a 16.07 per cent return for the company’s conservative fund – was an early move, ‘a no-brainer’, to cash and fixed interest as opposed to shares. As an active fund manager, Huljich says the company has more discretion than many about how it handles its funds’ asset allocations.”.
How many of you could earn 16% in cash and fixed interest. Either they speculated on under priced bonds for a conservative fund or there is something dodgy about the declared return. It seems reasonably clear to me they pumped their returns shortly after 31 March 2008 when they had total members accounts of only $107,066 per page 10 of the Annual Report . This upped their unit price on a small value as the SST indicated.

Then for the investors after March 2008 they do not calculate the growth from inception but instead take advantage of that nice fake buffer by calculating the unit price from the ramp rather than as a weighted average of returns from inception. The unit price is nominal and subsequent investors would not be prejudiced by the ramping but would simply have been mislead into investing in a fund that actually made a loss in its first 6 months. It would be fascinating to see their weighted monthly portfolio returns against the value of the portfolio at that time along with a link to their portfolio structure at each point. The definition of "Investment Returns" is interesting. I cannot see whether it is mark to market or actual cash. Will check later.

I am also incredibly surprised that Don Brash is anywhere near it. I have huge respect for his integrity even if I do disagree with some of his actions as Reserve bank governor.

UPDATE: I have investigated further. The dates don't stack on March 2008 for the growth fund although they could fit on the conservative. I withdraw the wilder statements above and have adjusted the post accordingly. I stand by the curiosity about how their portfolio has performed month by month.
You can get at their full detailed accounts at the Companies Office which have got a split between the funds showing they lost money till March 2009. The unit price was slightly negative at March 2009. - 0.9743 at which time they had $11.6m in their fund so Adolf is right the impact would be negligible. By Sep 9 that had risen to 1.0853 which I can easily believe given the lift in global stock markets during that time.

20 comments:

sagenz said...

Somebody please tell me this is the wrong assessment. It would be far too depressing if this is actually the case.

Anonymous said...

Sage, I'd be real careful about using "Madoff" in your description of Huljich.

Madoff was a crook who used a Ponzi scheme on investors. There is no such evidence of any of that here, and use of the word "Madoff" is arguably defamatory.

What you have raised in the second half of your post is interesting - a suggestion that all Kiwisavers must use the same method of calculating returns in order to show a like for like.

Adolf Fiinkensein said...

I suspect the elephant in your room might be the fact that you have not shown Hiljich to have done anything illegal or unusual.

It is laughable to suggest a cash injection by the fund manager (for that is what it was)two years ago of just $60k has had any significant effect on the current returns from a fund exceeding $16 mil.

You would do better to focus on the actual reported returns for the last twelve months compared with the firm's competitors. That's what really matters. Not some chicken shit academic argument about something which occured a long time ago and has no present day relevance.

Danyl said...

The SST wrote about Huljich a couple of weeks ago:

The Huljich Balanced Diversified Fund – one of the unit trusts to survive the chop – noted the following in the year to March 2009: "During the year the fund acquired shares for the nominal value of $2. The fair value of these shares at the date of the transactions was $61,423. These transactions represent an ex gratia payment from the manager."
The Star-Times asked Huljich for further details of these transactions, whether there were similar deals in other unit trusts and whether they affected KiwiSaver valuations.
In an emailed response he said: "I have thought about your questions and advise that the information you are seeking is commercially sensitive."

Adolf Fiinkensein said...

So there we are, Danyl. Thank you.

No secrets. No big deal. All out in the open and always has been.. Noted in the annual report.

Now, where is the commentary on and interrogation of the little big mouth and his grossly negligent non-performance?

gomango said...

Adolf

You need to understand the math of how returns are calculated.

In NZ return calculations are independent of fund size, so yes $60,000 does have a very significant effect on performance since inception.


And yes it is unusual - I can tell you what the SEC in the US would do if this happened in their jurisdiuction........

If you'd like me to explain the math in words of one syllable, just ask.

Danyl said...
This comment has been removed by a blog administrator.
Adolf Fiinkensein said...

No gomango.

YOU need to demonstrate how a cash injection of $60k over two years has any significant impact on the performance of a $16 mil fund two years later.

The US is not NZ and has far more and greater frauds than will ever be perpetrated here.

The practice of enhancing the accounts of policy holders is as old as the hills in the funds management industry. It was used commonly by the funds management industry during the nineties. Perhaps you're too young to remember.

Adolf Fiinkensein said...

Sagey, have you not paused to contemplate the reality that neither Dr Brash nor Mayor Banks are either idiots or rank amateurs?

They are DIRECTORS of this company for goodness sake and accordingly have serious responsibilities under the Companies Act. I'm sure they will not allow anything as silly as nefarious conduct within a penny-ante investment company to blemish their careers.

Here you are seriously suggesting improper conduct?

Adolf Fiinkensein said...

Well done, Sagey!

sagenz said...

Adolf - Finally - No I am not suggesting very much and have updated the post. I do not like Huljich disclosures at all and much prefer Gareth Morgan's having spent a few hours trawling around.

It seems to me that Kiwisaver urgently needs a mandated and comparable rate of return that compares apples and apples.

Something smells wrong about Huljich disclosures but I cannot put my finger on it. the GMK has an excellent annual report that has returns by month

I will come back to this when the March 2010 Annual Report is released.

Adolf Fiinkensein said...

Yes, I agree on the matter of reporting. I'm surprised there is not a standard laid down for reporting results.

BTW I got out of handling investment products over ten years ago becuase (a) the industry was it's own worst enemy and (b) dead people don't complain about life insurance.

Anonymous said...

Good on Phil Sage for withdrawing some of the "wilder" parts of his post.

He is right to demand higher disclosures from Kiwisaver providers, but it is also good for him to acknowledge that the Huljich/Brash fund may have simply well- timed their entry back into the market.

gomango said...

ok Adolf here you go.

Unit price at inception =1.00

lets assume performance in the first year was 0%, and performance in the second year was 10%

On these (entirely made up) numbers, the unit prices over 2 years are:

t=0 1.00
t=1 1.00
t=2 1.10

cagr since inception = 4.9%

Note how this return is entirely independent of fund size - that is how performance numbers are calculated in NZ

Ok, now lets assume the fund had $300,000 FUM on day 1 at a unit price of $1.00. Add in a $60,000 windfall, unit price now becomes $1.20 (ie $360,000/300,000 units)

Then using the same growth rates as above, our unit prices become:

t=0 1.00
t=0.001 1.20 (ie the second day the fund is open)
t=1 1.20
t=2 1.32

cagr since inception = 14.9%

I'm not claiming this is what the particular fund manager has done but if you want to know how it works, there you are.

In this "theoretical" example I have boosted my fund performance by 10% PER ANNUM (!!!!!) for a paltry "marketing" spend of 60k. (Note how it doesn't matter whether there is $1 in the fund now or $100 million.)

Yes - if you were in the fund on day 1 you profited from that, but typically its only friends in family in the fund on "boost day" so essentially its their money anyway. But the return since inception looks fabulantastic and the punters will be flooding in.

Now do you understand Adolf?

So where YOU say "YOU need to demonstrate how a cash injection of $60k over two years has any significant impact on the performance of a $16 mil fund two years later." I think YOU now say, "thank YOU gomango for promptly answering my request."

Too young? I wish. Wrong side of 40 now....... But again to talk to your comment about the 90's. I think you are actually referring to endowment policies and insurance trusts etc where there is an annual decision made by the actuary about what reserves are required to ensure future claims paying capacity on the insurance portion of the investment. Actuaries being actuaries tend to over reserve (this also provides an element of free capital to the life company.) When they go about "enhancing the accounts of policyholders" all they were doing was giving investment returns back to the investors that the life company had taken from the investors in the first place. Not altruism at all. I did spend a chunk of my life in the late 80's early 90's in the actuarial department at one of the two big insurance companies in Welly.

pdm said...

Sagenz and Adolf - don't forget an Investment Statement is not a Prospectus.

sagenz said...

pdm - I looked on the companies office website. The prospectus is a joke. The summary financial statements hidden on their website are pathetic. the Annual report filed online has some more interesting information.

gomango. I agree with your assessment. It is entirely possible that is what happened shortly after March 2008 but the growth fund subsequently went negative by March 2009. which said to me maybe/maybe not. I have my suspicions though.

gomango said...

level of disclosure in NZ is a joke. Part of the problem is that what mst be disclosed ids proscribed and if you tick all the boxes then you meet the legal requirements. At no point is the test "what should investors e told" is applied. Its only ever "does this meet the rather narrow requirements of the act." And an IS r advertising ony has to be "not inconsistent" with the prospectus. Enforcement in NZ is a joke because our laws around public offerings are so out of date.

And whats happened to Adolf? No response? - he has gone quiet. No more spruiking of Huljich Wealth? Thought to be fair I do agree with him entirely re Gareth Morgan..

gomango said...

http://www.sec-com.govt.nz/new/releases/2010/190210.shtml

Cmon Adolf, tell us again how this works. Care to comment?

gomango said...

you know, "chicken shit academic argument" and all that.......

EbolaCola said...

I love how you whupped Adolfs blinkered partisan ass, he seems to think that anything associated with teh godlike Banks and Brash could do no wrong.

Nice to see him cowering in fear.

Pro Tip Adolf - Mea culpa