This is where contingent charging takes you; another blog that has been supressed for a couple of years – I seem to remember some heavy handed solicitor’s letter from one of the parties listed below required me take it down.
I republish it on the day that the FCA announce their next consultation on banning contingent charging to remind people just where the free flow of money can take people.
In this blog, I raise four concerns about the investment solutions recommended by Active Wealth (UK) Ltd to members of the British Steel Pension Scheme (BSPS).
- Corporate structures
- The role of Vega Algorithms
- Custody and fund governance of 5Alpha
- 5Alpha fees
Scene setting; the investor’s journey
I ( understand from documents shown by clients of Darren Reynold’s Active Wealth (UK) Ltd) that a typical journey for invested monies after transfers from BSPS.
Members are understandably confused about where the money is going and who all the participants are.
Concern one; corporate structures.
Typically, I have seen money from Active Wealth Uk Ltd (Active Wealth) invested into the “Vega Algorithms AWGO – Ultra-Conservative portfolio” which is currently invested in the 5Alpha conservative UCITS managed by Newscape Capital Group. Vega Algorithms is a research and technology company that advises Gallium Fund Solutions Ltd on its portfolios and is an Authorised Representative of Gallium Fund Solutions Ltd.
This note looks at the underlying asset into which most of Active Wealth’s money is invested. CETVs are principally invested through the Momentum SIPP and the Intelligent Money SIPP. I am not focussing on these SIPPs, though we consider them negligent in not ensuring proper fee disclosure; theirs’ are errors of omission which are secondary to the focus of this paper.
My concerns with the other participants in the chain are more substantial.
I cannot see how Vega Algorithms and 5Alpha are separated.
Gallium and Vega Algorithms are also linked through regulation, though the impact of this link is not clear.
David Cassettari is a CF1 Director of Gallium Fund Solutions Ltd and AR for Vega Algorithms and Steffen Hoyemsvoll is CF30 for Gallium and AR for Vega Algorithms
I can see clear links between the Celtic Wealth, Strand and Vega Algorithm businesses.
Steffen Hoyemsvoll is also well known to My Workplace Pension, a master trust known to Clive Howells through his partner – Gavin McCloskey , co- owner of Bespoke Pension Solutions. Gavin McCloskey is also listed as a Director of MWP Pension Ltd which operated My Workplace Pension.
Celtic Wealth Management – (which provided leads and office space to Darren Reynolds) – was created out of Bespoke Pension Solutions, (much as Vega Capital emerged out of Strand Capital).
My Workplace Pension employed Strand Capital to invest member’s assets and Steffen Hoyemsvoll is the named manager on My Workplace Pension’s website’s “who we are” page
We can see that Steffen Hoyemsvoll is named as the manager of Strand Capital which, until it failed in May 2017, managed My Workplace Pension’s investments.
I can see a clear link between this master trust, Bespoke Pension Solutions and Celtic Wealth.
I can see that Steffen Hoyemsvoll is still managing money resulting from the lead generation of Clive Howells and associates to this day.
The ownership of Vega Algorithms and Strand gives further grounds for concern.
Strand Capital’s former owners “Optima Wealth Group” (OWG) is listed in Strand’s former offices. It also owns 48% of Vega Algorithms and Brandon Hill Capital which it acquired in 2015. Optima’s principal is Neal Griffiths. OWG does not look solvent from a preliminary inspection of its accounts
Like Strand Capital, My Workplace Pension is no longer accepting new business.
With such a high casualty rate, I wonder how wise it is for the entire proceeds of BSPS member’s retirement accounts be entrusted to the management of this small web of companies and individuals.
Concern two; the Vega algorithm.
Despite it only investing in 5Alpha, Vega advertises itself as having radical capabilities, this is a statement taken from Vega Capital’s website
Unbiased algorithmic portfolios
The portfolio construction algorithm is based on empirical research and up-to-date portfolio management techniques. We use technology to do the heavy lifting: the systems we have created enable us to make qualitative and quantitative assessments of 1,000s of securities every day. The result is an intelligently diversified portfolio with the greatest potential for return for a given risk profile.
You can be sure that the human biases of fear and greed, proven to be detrimental to long terms returns, do not play a role in how your investments are managed. Instead, every investment decision made is free of emotion and consistent with a growing body of investment and risk management research that spans decades.
Similar hyperbolic language is used to describe the Vega system of risk management.
Despite this, there is no evidence that the Vega Algorithms does anything at all other than holding the 5Alpha fund. At present the algorithm is merely a marketing device.
Concern three; custody and fund governance of 5Alpha
5Alpha uses the outsourced service of Newscape, an Irish hosting service. A similar arrangement is described in this article.
My concerns here and elsewhere focus on the 5Alpha Conservative Fund Factsheet and especially from the Conservative Fund Supplement (the Supplement) downloadable from the Newscape website
Despite the numerous participants in the chain, we have no idea who acts as custodian sub-custodian and accountant of the assets of 5Alpha. I am aware that failures to disclose these relationships led to the falsifications in the Madoff fraud and could allow those operating the funds to declare whatever performance numbers suited its purposes.
The 5Alpha prospectus gives the managers almost total discretion as to the funds exposure to exotic assets, there are no guidelines on portfolio turnover. This is particularly worrying as though the fund’s target investor profile is the low/moderate risk investor, the Supplement suggests that the fund could be incorporated into a fund with a different investment portfolio.
Considering the managers of Vega Algorithms and 5Alpha appears to be the same persons, the controls on risk management seem weak and the provenance of the asset management team as weak.
Concern four; 5Alpha Fees
Ignoring whatever fees are levied elsewhere, the capacity of 5Alpha to ruin the retirement plans of those investing in it, stretches beyond its investment strategy (see Addendum). The fee schedule laid out in the prospectus is frightening.
The stated management fees of the fund are 0.5% pa. This management fee can double at any time and for any reason and without notification, so the fund can operate with a 1% charge whenever it’s managers want it to.
The fund also pays its managers a performance fee of 10% of returns over a 5% pa performance hurdle. The Supplement is quite explicit in detaching the fee from what the members get as a return.
One instance where performance fees might be paid, where no performance has been realised is where third parties have been paid out of gross contributions. The 5% performance hurdle is based on the performance of the fund after entry costs have been deducted which wouldn’t normally be an issue, but certain share classes of this fund allow a 7.5% marketing fee to be paid to an introducer.
There is good reason to believe that a fee of this proportion has been paid to Darren Reynolds on money he has invested into the Vega Algorithms. The statements below are taken from the BSPS deferred member Facebook page.
The member may see a gain on his statement but not be able to realise it as can be shown below.
It is easy to see how such an exit change can be generated. Many of the share classes allow for at least 10% of the initial investment to be taken in year one. This table is taken from the Supplement.
In addition to these stated charges are other costs, the following analysis has been passed to us from someone we consider to be expert in this field.
- “The Introducing Broker will be remunerated out of the assets of the Fund for its services directly by the Fund on an ongoing basis at a rate of 0.25% per annum”.
- “A Contingent Deferred Sales Charge will be payable to the Fund when Shares in certain classes, as set out in the Chart, are redeemed.”
- “To preserve the value of the underlying assets and to cover dealing costs the Investment Manager, on behalf of the Company, may deduct from the repurchase proceeds when there are net redemptions an anti-dilution levy of up to a maximum of 2% thereof to cover dealing costs and to preserve the underlying assets of the relevant Fund.”
- Total to leave in year 1 is therefore 7%
- “The Investment Manager is also entitled to be paid certain specific costs and out-of-pocket expenses incurred directly in relation to the Fund that including marketing and data and information source subscription expenses
- These are known as disbursements. In this case these fees include marketing expenses. This is unusual, uncapped and highly likely to be abused.
- “The Administrator shall be entitled to receive an annual fee out of the net assets of the Fund charged at commercial rates as may be agreed from time to time up to a maximum fee of 0.08% of the Net Asset Value of the Fund accrued and calculated on each Dealing Day and payable monthly in arrears subject to a minimum monthly fee of up to €3,000.”
- This may be spread across the entire fund, but if levied on the asset of an individual, it means EUR 36k pa
- “The Depositary shall be entitled to receive an annual fee out of the net assets of the Fund charged at commercial rates as may be agreed from time to time up to a maximum fee of 0.03% of the Net Asset Value of the Fund accrued and calculated on each Dealing Day and payable monthly in arrears (plus VAT thereon, if any) subject to a minimum monthly fee of up to €3,000.”
- Again probably spread across the whole fund, but also possibly levied on individuals, at a minimum of EUR 36k pa
- Sub-custody transaction and holding fees are also applied at ‘commercial rates’. No fee schedule is attached, but a bad sub-custodian will charge a lot for passing and holding esoteric asset in esoteric markets
- “The Fund may incur a distribution fee or charge, payable to the Investment Manager or for onward transmission to an intermediary or distributor or by way of direct payment to an intermediary or distributor of up to 5%”
- “The Fund may levy a discretionary arrangement fee on an initial investment payable to the Investment Manager or for onward payment of up to 3%”
- “The cost of establishing the Fund and the expenses of the initial offer of Shares in the Fund, marketing costs and the fees of all professionals relating thereto are estimated not to exceed €50,000 and are being borne by the Fund and charged to the Fund”
With the exception of the SIPP providers, I see evidence of collusion along the whole supply chain.
Clear links exist between Celtic Wealth, Active Wealth, Vega, Newscape and Gallium. There are links here to other failed ventures such My Workplace Pension and through this master trust to Strand Capital.
Taken together I see considerable danger of failure .
There is insufficient evidence of controls in the Supplement and insufficient track-record of the fund to justify anything other than a highly speculative investment. I don’t think this is what the members who used Active Wealth Management had consciously chosen to invest in.
Quite apart from these failings, the costs associated with investing in these funds, especially if it is found that money was invested through share classes B & C, make it highly unlikely that there would be capacity to pay reasonable pensions over time.
I am grateful for help in putting together this report by experts, one of whom has asked to be quoted.
I am an experienced professional investor, both personally and as an institutional manager. I have been active in the world of pension investment for decades. In my opinion, this investment proposition is wholly unsuitable for individual pension savers, and particularly so for those nearing retirement. – Con Keating.
Call for Action
Having conducted this investigation, I call on the FCA to immediately canvas IFA and brokers to establish the nature and extent of any investments into Vega.
I suggest the FCA issue a “Charlie Charlie”. This is the phrase used in the military to get radio subscribers to prick their ears up and listen in to an important signal intended for all call-signs.
In the meantime, there is helpful advice from a number of sources – collated in the blog “steelworkers – what to do now”.
Addendum – an example of member disclosure.
It would seem that what members hear is different from what I see.
There has been a lot of talk on the Facebook pages about a 0.66% annual charge applying to Vega. Here is evidence of how this number is publicised – an anonymous email posted on the Facebook pages suggests disclosure that Vega’s annual fees are 0.66% .
Whatever the intended impact of this disclosure, it in no way describes the full impact of “fees” on an investor’s account.