GHC5 billion dubious deals; SEC chases fund managers

Financial-markets regulator, the Securities and Exchange Commission (SEC) is conducting a serious probe into a GH¢5 billion ($921 million) fund mangers pumped in risky investments which have gone bad.

According to SEC, fund managers are struggling to retrieve the funds which are stuck in short-term unlisted bonds, direct private-equity stakes and related-party deals for small- and medium-sized businesses.

Deputy Director General at SEC, Mr Paul Ababio made this disclosure, stating, “With efforts to retrieve the money proving futile, the SEC is starting forensic audits to determine how to retrieve money for investors, which may include selling off the fund managers’ assets.”

“If part of their portfolio is distressed, we have to understand it to know what solution to deploy,” Ababio said in an interview in Accra. “We’ll look at what can be done for investors-we’ll look at liquidation.”

It became apparent, weaknesses in the GH¢25 billion fund management sector, after the Bank of Ghana (BoG) embarked on sector reforms, requiring banks to recapitalize.

“Twenty-one firms are being audited, which will be completed by the end of the year,” Mr. Ababio noted.

He again mentioned that, “in all, GH¢9 billion was reported by fund managers as being tied up, of which GH¢4 billion was held in Treasury bill-linked instruments with banks, savings and loans companies or micro-lenders.

SEC

SEC rules forbid fund managers from directly underwriting corporate debt or taking straight private-equity positions, even though they can lend to businesses through reputable financial institutions and invest in a private-equity firm, which then acquires stakes in companies.

In July 2019, SEC revealed a possible collapse of some investment firms after undertaking a forensic audit of some twenty-one investment firms and fund managers that have come under scrutiny.

A year ago, SEC ordered fund management companies to stop issuing fixed-term/guaranteed returns to clients.

Consequently, the financial-markets regulator gave the fund managers six months ultimatum to unwind the fixed-term investments on their books and migrate their clients to other options like managed account mandates and collective investment schemes.