Statutory managers looking in Hubbard Management Funds (HMF) have delivered a report scathing of Allan Hubbard's financial reporting, with millions of dollars of claimed assets not existing, and an investment strategy reliant on second tier companies and
Statutory managers looking in Hubbard Management Funds (HMF) have delivered a report scathing of Allan Hubbard’s financial reporting, with millions of dollars of claimed assets not existing, and an investment strategy reliant on second tier companies and “penny dreadfuls.”
HMF, along with Aorangi Securities, were placed into statutory management in June over accounting irregularities.
Richard Simpson, of statutory managers Grant Thornton, said reports by Mr Hubbard to investors in HMF on March 31, 2010 were overstated and included many assets that could not be found.
“The reason for this is that some of those statements included investments and cash balances which did not exist,” Mr Simpson said.
The statutory mangers report said the fund’s reported value at that time was overstated by at least 25%.
The report notes Hubbard claimed HMF had $6m of uninvested funds, but the statutory managers discovered cash available at that date was only $350,000.
The statutory managers could also not find many items listed as assets: “Shares and other investments in excess of $13m which do not exist have been allocated by Mr Hubbard to investors within the HMF portfolio.”
The report also warned that their next report, due in September, would likely further write down HMF assets: “There are also likely to have been further losses in value to the fund since 31 March 2010 due to weaknesses in the markets over that period.”
The statutory managers commissioned an independent fund manager to assess HMF, who found the majority of investments were “in private equity funds, second tier companies and ‘penny dreadfuls.’”
The high-risk nature of many investments jarred with the mostly older, conservative investors in Mr Hubbard’s schemes, the fund manager said: “that is not consistent with what we understand would be appropriate for a typical investor in HMF.”
HMF had also accepted $8m from venture capital funds, and the report notes that with no new desposits being accepted - and few liquid assets - the fund could be unable to pay on time and be in breach of contractual obligations and incur penalties.
The statutory managers also identified unsecured exposure to a firm, Southbury Group, majority-owned by Mr and Mrs Hubbard of over $10m.
The prospect of recovering this money appears bleak as Southbury assets are already pledged as security to other lenders.
HMF are not listed by the Ministry of Economic Development as holding any secured interest over Southbury loans. ANZ National Bank has secured collateral that includes land titles, investment securities, money, negotiable instruments and intangibles
A loan from South Canterbury Finance is the only other secured lender to Southbury and the troubled firm’s exposure is listed as subordinate to seven loans from ANZ.
