The Hong Kong-based fund house has been reprimanded and fined HK$4m ($515,700) by the SFC, the watchdog said in a statement. Value Partners believes it is an isolated incident, said its spokeswoman.
The two funds, Value Partners China Greenchip Fund and Value Partners Greater China High Yield Income Fund, set the authorised share capital when they were first set up in 2007 and 2013, respectively.
The Greenchip fund was allowed to have 200 million shares, or HK$20m in total. It exceeded that amount from June 2015 to February 2016: the total issued shares reached 206 million at 2015-end, SFC said.
Another fund ran an excess of 814 million participating shares on 12 April 2016, compared to its authorised amount of 49.9 million. Unauthorised shares of this high yield fund were issued as early as November 2012, according to the SFC.
“While Value Partners considered that the economic interests of investors in the funds have not been prejudiced by the incidents, the SFC considers the incidents serious as they called into question the validity of the shares issued to investors of the funds,” the regulator said.
Slow to report
VP did not report promptly to the SFC after first identifying the problem in October 2015, as they considered that the incidents were administrative in nature and did not impact the economic interests of the investors, the statement said.
In April 2016, the firm’s auditors found out and advised VP to report the matters.
“Value Partners have failed to act with due skill, care and diligence in the management of the funds,” the SFC said, adding that the firm took actions to rectify the failures without apparent investor losses.
VP noted it has worked with custodians and the fund administrators to “adopt additional controls and reporting mechanisms to prevent future recurrence.
“A further hard block has been set on the system to prevent shares being issued in excess of the authorised limit,” the firm continued.
“Meanwhile, we have appointed an independent auditor, KPMG, to conduct a thorough review of our internal control systems, which have found no material issues. We thus believe this was an isolated incident, in part due to the concept of authorised capital, which has been abolished in some countries (e.g. UK).”
A source told FSA that after the violation was reported to the SFC in April 2016, the two funds, through proper procedures, had the authorised capital limits increased and subscriptions resumed in September last year.
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Performance (in US dollar terms) of the two Value Partners funds cited by the SFC, over the trailing three years versus their respective sectors, according to FE data. Neither fund uses a specified benchmark.
