New Zealand’s largest boutique fund manager, which has a successful Sydney office, has been fined a record NZ$1.5 million (about A$1.4 million) after settling a long-running regulatory investigation into market manipulation charges last week.
Under an agreement with the Financial Markets Authority (FMA), the NZ$3 billion-plus Milford Asset Management will pay a fine of NZ$1.1 million and NZ$400,000 in legal costs.
In a statement the FMA said: “the trading conduct [uncovered in the Milford investigation] breached the market manipulation prohibitions in s11B of the Securities Markets Act 1988”.
It said: “As Milford is the relevant trader’s employer, the FMA considers that Milford is liable for the trader’s alleged breaches of the Act… Milford denies that it is liable for any alleged breaches. The FMA acknowledges that its conclusions have not been tested in court.”
While Milford managing director, Anthony Quirk, described the “full and final” settlement as a “commercial” solution, the FMA will continue its probe into the unnamed ‘trader’ at the centre of the market manipulation allegations.
However, Milford did cop the blame for poor governance procedures, which it has since amended after hiring PwC to review its operations.
“Milford and its board accept responsibility for the inadequate oversight and control of the trading conduct which was under investigation, and the failure to identify and monitor this activity, or to assess whether the activity was appropriate,” the FMA statement says.
The fund manager now routs all trades via central dealing desk and will soon implement an “international best practice” trading system, Quirk said.
Following the settlement, Milford published new fund documents deleting NZ equities portfolio manager, Mark Warminger, from its list of senior staff. Warminger has also been scratched from the Milford website without explanation.
Brian Gaynor, Milford founder and chair, has picked up Warminger’s portfolio management duties. Fund research house, Morningstar, placed the Milford Trans-Tasman Fund “under review” after the changes were announced.
The New Zealand Superannuation Fund (NZS), which suspended Milford’s $281 million local equities mandate in April would “consider the report in detail before deciding upon our response”, a spokesperson said.
“Milford’s mandate will remain suspended until further notice. We have the capacity to manage the funds in-house on an ongoing basis,” the NZS spokesperson said.
It is understood other institutional investors and consultants are reviewing their Milford exposure post the FMA settlement.
Milford is primarily a retail manager – including a large direct component and a $450 million KiwiSaver scheme – but has secured a number of mandates with charities, super funds and other wholesale investors. For example, multi-management firm Mercer uses Milford on its NZ equities platform.
Milford also has a Sydney office to manage Australian stock research but the firm also had ambitions to secure superannuation mandates across the Tasman.
The FMA investigation began last August following a complaint originally filed with the NZX.
– David Chaplin, Investment News NZ
Favourite boutique cops record fine from Kiwi regulator