Another asset manager sucked into the Fidentia black hole

Just over a month ago, the Cape High Court placed Fidentia Holdings (Fidentia) and two of its subsidiaries in the care of curators. Late last week the same court ruled that Ovation Global Investment Services (Ovation) and Ovation Global Investment Nominees be dealt with in a similar fashion.

The court ordered that attorney, John Levin and forensic accountant, Barend Petersen be appointed joint curators of the business conducted by the two companies.

The application was brought to the court by the Financial Services Board (FSB) when it became clear that Ovation might not independently survive the fallout from the Fidentia scandal.

"In court papers it was stated that the Ovation companies are closely associated in business with Common Cents Investment Portfolio Strategists (Pty) Ltd and Fidentia Asset Management (Pty) Ltd and that the curatorship of these companies has seriously affected the business of Ovation," said Russel Michaels, spokesperson for the FSB.

R160 million disappears at Common Cents

Ovation offered an investment in a money market fund operated by Common Cents to as many as 3,000 of its clients. In September 2006 an FSB investigation revealed that as much as R160 million was missing from Common Cents' coffers and the company was subsequently placed under provisional curatorship on 9 October 2006.

Meanwhile, Ovation continued operations from Fidentia's offices in Cape Town. Fidentia, which owns 25% of Ovation, is believed to have attempted to purchase the entire company halfway through 2006. The transaction was never completed.

Gerry Anderson, an executive at the FSB noted that "new business inflows have declined significantly and disinvestments are increasing sharply" at Ovation. This cash flow problem, coupled with the unclear legal relationship between Fidentia and Ovation placed serous doubts on the ability of Ovation to continue as a going concern.

Ovation MD, Vincent Vermaak believed that the court order would be in the best interest of investors. He hoped that the curators would be able to look after investor interests while a possible suitor for the company could be found.

Potential losses are limited

Initial estimates show that as many as 15, 000 clients have invested R4.4 billion in Ovations linked investment service provider (LISP).

Since the Fidentia scandal, many asset managers have been diverting their client's voluntary funds from Ovation. This cash drain on the company is one of the extenuating factors leading to Ovation being placed in the care of curators.

Now that the Court order is in place, all transfers or withdrawals from Ovation will have to be approved by the registrar. Individual investors with preservation funds or living annuities held by Ovation will be unable to withdraw their funds from the company. Their monthly annuity benefits should not be affected.

Michaels says: "Although thorough investigations into the affairs of Ovation are yet to be completed, the Registrar has been assured by current management that the 15, 000 clients whose R4,4 billion rand is administered by Ovation are unlikely to suffer substantial losses on their investments. These investors are advised to exercise patience and to leave it to the curators to look after their interests."

Editor's thoughts:
The problems at Fidentia continue to blight the financial services industry... Despite initial assurances that Ovation would not be impacted by the Fidentia debacle, the company has now also been placed under the care of curators. Do you think well see more companies follow the same route? Send your views to [email protected]