It’s not just IFAs that should be livid!

two stories

Here is the note I wrote when I read New Model Advisers report

  1. On why FSCS cannot determine its current levy (uncertainty over Strand Capital)
  2. On why FSCS has to unravel its past compensation (uncertainty over Arch Cru)

Today (Jan 4) FSCS published its Outlook for 2018. Last year’s levy of £100m has been increased by £24m to cover the cost of failed investments in Self Invested Personal Pensions. Deep in the Chair’s statement is an admission that FSCS can’t share any rebates to IFAs because of uncertainty over compensation payable to customers of Strand Capital.

IFAs will be surprised to know that Strand Capital’s management and ownership is shared by another fund that has been much in the news lately – 5Alpha, into which the majority of the transfers from BSPS by Active Wealth Management were invested.

100% of Strand Capital and 48% of the Vega Algorithms Discretionary Fund Manager (DFM(currently 100% invested in 5Alpha is a company called Optima Wealth Group (OWG). The manager of Vega Algorithms, of Strand Capital and until recently displaced of 5Alpha, is Steffen Hoyemsvoll

5Alpha has been recently been analysed by a leading funds expert who has delivered a demining verdict on its structure, governance and sustainability.

How can the manager of a fund that is currently FSCS’ major problem, be back managing a DFM and until recently a fund at the centre of another controversy within a few months?

How can the FCA have failed to spot the common ownership of Strand and Vega by OWG.

How must FSCS be feeling to discover that Strand’s phoenix “5Alpha” is busy taking money from steelworkers in Port Talbot.

And how must FSCS feel that Stephen Decani , CEO of Newscape, the owner of 5Alpha was was a Senior Partner and Head of Strategy and Distribution at ARCH Financial Products LLP, where he was responsible for deal origination and structuring, and for a team of strategy and distribution professionals.(Bloomberg)

I wrote the note to simplify the issue for a friend who is doing some work on this subject. The sad fact is that it’s not just FSCS who will feel the pain of Strand and Arch Cru, it is the IFA community and the people they support.

This point is made well by the excellent Ken Davy who calls the FSCS levy a “disgraceful injustice“

This totally arbitrary and ridiculous system which virtually everyone recognises is a broken model must be radically changed by the FCA without any further delay.”

FSCS is to advisers what the PPF is to occupational scheme, a levy paid by the good on account of the bad. It introduces moral hazard into the mind of the already unscrupulous . When the management of Strand Capital or ARCH Financial products decide to bail out, they can walk away and start again. Strand became 5Alpha, Newscape was born out of Arch Cru.

While the management of Strand are now raking in 0.66%pa of assets in the Vega Algorithms (sole investment 5Alpha Ultra Conservative), Newscape host 5Alpha as a SICAV on its Dublin fund platform.

Potential investors in “My Workplace Pension” were advised their money would be managed by Strand Capital

The lead managers for Strand are Hamilton Keats, a physicist and statistician from Imperial College London and Steffen Hoyemsvoll a physicist from University of Oxford

You might think that giving your money to a couple of egg-heads straight out of university was a bit risky but don’t worry

Strand Capital Limited is  authorised and regulated in the UK by the Financial Conduct Authority under reference number 494001. Strand Capital is part of Optima Worldwide Group which is has interests in asset management, merchant banking, security, natural resources and agricultural sectors as well as providing professional services and advice to Governments, Companies and select individuals in the UK, Middle East, South Asia and Africa.

Who owns my workplace pension? Well the BBC investigated it and found

MWP Pension Ltd is a company appointed by My Workplace Pension to do marketing for it. According to Companies House, it is 50% owned by Gavin McCloskey.

Gavin Mccloskey was company secretary and director of  Bespoke Pension Solutions

bespoke

While the names aren’t quite the same, isn’t it odd that Gavin and Sean handed over to a certain Clive Howells, who has since become famous for giving not chicken in a basket – but sausage and chips to Port Talbot steel men – before introducing Active Wealth Management.

Isn’t it odd that Active Wealth Management’s advice to those Steel workers was to invest the transfer of BSPS rights in Vega Algorithms? What a weird coincidence that the manager of Vega Algorithms is Steffen Hoyemsvoll (see Strand Capital above), that 48% of Vega is owned  by the Optima Wealth Group (see Optima Wealth Group above) and that according to research published in Money Marketing

Asset management conglomerate Optima Worldwide Group purchased Strand in 2014, and made an investment into the company to develop an algorithmic trading platform.

This went live in February 2016. Before then, Strand Capital only arranged investments in Optima bonds, but these tailed off “as alternative investment products were introduced by the company” the administrators say.

A company called 5Aplha provided IT services to Strand. The administrators say that around November 2016, a “significant portion” of Strand’s investments were moved to the Irish domiciled 5Alpha Adventurous Fund and/or Conservative Fund.

Justin Cash’s report of the demise of Strand shows that its management locked themselves out of their own computer systems , leaving assets and unit owners floundering!

This would be vaguely comical if it were not that there are real people who own Strand units. That FSCS is currently unable to finalise its levy as it seeks to sort out the mess left when Steffen and Hamilton turned out the lights and that all the aforementioned now appear in the Port Talbot train-crash , played out over the past six months.

The most frightening document of all , is the Smith and Williamson joint administrators report itself, not for the incidental detail above , but for this.

Trading background

 In September 2014 Mr Hamilton Keats was appointed director of the Company, and OWG invested funds into the Company to support the development of an algorithmic trading platform.

 5Alpha Limited (“5Alpha”) provided IT services to the Company, in particular in relation to the development and maintenance of the algorithmic trading platform. No formal contract for services appears to have been entered into between the Company and 5Alpha. Mr Hamilton Keats was also the director and largest shareholder of 5Alpha.

 Until May 2016 the only investments arranged by the Company were in OWG bonds. However, investments in OWG (optima worldwide group)  bonds slowed thereafter as alternative investment products were introduced by the Company.

 The algorithmic trading platform went live in February 2016, and from circa May 2016 the Company began using the algorithmic model to pick investments on behalf of clients. Around this time the Company’s online platform also went live, which provided clients with access to their individual investment account details.

We might well ask why Strand was invested in bonds issued by the company that owned it

In January 2014 the Company was acquired from Mr Martin McNally by Panacea Corporate Services Limited, and was subsequently transferred to Optima Worldwide Group Plc (OWG).

But it seems to be out of the frying plan into the fire…

Until November 2016 the types of securities selected by the algorithmic model could be broadly categorised as relatively conventional, on the basis that they were typically listed on the London Stock Exchange.

Around November 2016 a significant proportion of the security investments were transferred to one or both of the following UCITS (“Undertakings for Collective Investment in Transferable Securities”):

1. 5Alpha Adventurous Fund; and/or

2. 5Alpha Conservative Fund

Both UCITS are sub-funds of Newscape Plc and are open ended investment companies with variable capital. This means they are professionally managed collective investment funds whereby investors receive shares in the fund, to be subsequently redeemed at a time suitable to individual investors. Both 5Alpha Adventuruous Fund and 5Alpha Conservative Fund are traded on the Irish stock exchange.

Its into these very funds that Active Wealth Management have been pouring the monies of the Port Talbot Steelworkers (via various SIPPs). The SIPPs are not inconsequential in this for Smith and Williamson also tell us

We understand that SIPP providers and Pension Trustees are the Company’s clients, as distinct from the underlying beneficial investors

Well here they are  – the asset owners of Strand.Gallium SW3

All reconciled, unlike the assets – the OWG bonds (especially the D bond)

Gallium SW2

And here is where the payments arrive and depart.

Gallium SW1


Plus ça change

I wish I could draw a line under Strand as easily as I drew a line under those accounts. I can’t. Vega Algorithms is an appointed representative of Gallium and invests in a fund run by a former director of Arch.

5Alpha is now managed by Newscape’s James Hutson but Steffen Hoyemsvoll is  still at Vega. Hamilton Keats is still listed as a Director of 5Alpha and of Strand Nominees though his linked in profile makes no mention of Strand (nor does Steffen’s).

OWG is still issuing corporate bonds (series D) and enjoying its share of the success of Vega Algorithms.

Newscape is still being instructed by Gallium on shares purchased with money advised by Active Wealth Management and “owned” by Active’s recommended SIPPs. This money is in part coming from “self investing individuals” but the decisions on share classes , exit penalties and dilution levies appear to be taken at a business to business level.

Investors are trying to work out exactly what they have rights to , by way of a return of their money or what they are likely to be paying for its management. What was “5Alpha” has changed its name

Newscape Global Multi-Asset Conservative Fund (previously 5alpha Conservative Fund)

Hopefully, as well as updating the name, Newscape will update the link so investors can see their newly renamed factsheets and fund prospectus.


Plus ça change, plus c’est la même chose

If I was Ken Davy, if I was an IFA, if I was a SIPP manager and if I was anyone who had to pay a part of the FSCS levy (which is practically everyone in one way or another) I would be livid. I am livid!

Plus ça change, plus c’est la même chose just isn’t good enough. Optima’s offices are a few hundred yards from me, Vega is a couple of stops down the line in Kidbrook, Newscape are close by me too. Gallium 20 minutes by train in Sevenoaks.

While everyone else picks up the tab, the various characters in this blog carry on regardless. Smith & Williamson’s report  makes no allegations and nor does this blog. It is not for us to regulate or prosecute.

But as FSCS payers, we should all be justly irate that it is ArchCru and Strand that are the principal reason for the FSCS levies exceeding their £100m limit.

FSCS is the PPF of the retail world. The Pensions Regulator is accountable for strain on the PPF and the FCA is accountable for strain on FSCS.

I am with Ken Davy and with every good IFA I know in demanding that more is done to protect FSCS. So long as the incompetence and insouciance that is displayed by this blog, in the Smith and Williamson report, in the FSCS outcomes report and in the various articles quoted – continues; confidence in our financial system will remain damaged. Worse, people will continue to be ripped-off

If you have read this blog, this far, you may be asking whether much is changing.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in accountants, advice gap, FCA, governance, pensions and tagged , , , , , , . Bookmark the permalink.

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