The crumbling Barak Fund Management’s $1bn money pool is preparing to sell its frozen assets after whistle-blowers sparked a probe into the Mauritian-based provider of trade finance’s dealings in March – but all probes seemingly came to a halt, leading to concerned investors calling for it to be re-opened.
South Africa’s Barak Fund’s plan to get rid of its assets is a worry, said one investor, who was approached by Barak seeking approval for the sale. “I have resigned myself to the fact that I will probably never see my money again, but I insist on a fair, transparent probe of the mess. One ‘in-house’ probe falls far short of closure for me,” he said.
The whistle-blower allegations were reviewed by the fund’s compliance officer, and not by the auditors, ending in a favorable outcome for the firm. A second review by an external audit firm seems to have quietly fizzled out. “We need answers,” another investor said. “And the only way we will get answers is by probe after probe after probe. This can’t be allowed to die a quiet death.”
“Barak’s troubles are a reminder of how plowing money into higher-yielding yet hard-to-sell assets can hurt investors when they want their money back quickly, a danger exacerbated by the global Covid-19 pandemic as prices began tumbling across financial markets last year,” financial advisor Aurum Trust said.
The fund is seeking investor approval to move ahead with a “restructuring and modernization plan” that involves spinning off illiquid holdings into separate vehicles for clients who want to hold on to their assets, according to documents sent to investors. The move follows the fund’s decision a year ago to freeze its money pool as some investments became trapped in a series of hard-to-sell assets across the continent of Africa.
As much as 54% of its assets are deemed illiquid, with the heaviest concentration in sectors such as coal mining, consumer goods, and fertilizer production in countries from South Africa to Kenya and Congo, the document shows.
The firm has provisioned $184m – about a fifth of its assets – for potential losses against liquid and illiquid investments. It has also sought investors’ permission to hire an undisclosed advisory firm managing $300bn to help oversee the process. Clients opting for liquidation will get their cash back when the firm is able to sell holdings “which can take years,” the investor said.
With investor withdrawals barred from the flagship fund since last April, investors are left with the option of hard-to-sell assets or waiting an infinite period of time for their financial investments to be paid out – if ever.
“I don’t want to hear about plans to ‘restructure’ or ‘modernize.’ All I am asking for is to keep the probes going. It is the only hope I have of getting at least some of my money back,” the investor said.
The fund’s current exposure is spread over 97 borrowers in transactions including working-capital financing, according to the restructuring document.
The firm “has not seen any significant improvement in the liquidity position of the funds and as such has had to proactively manage the risk components linked to the mismatch between the liquidity of the underlying assets and the liquidity offered to investors,” Barak told clients in the proposal document.
Not only is the pending restructuring process still uncertain, but the completion of the Annual Financial Statements Activist for Barak Africa Trade Finance Fund, the Barak Sharia Fund, and the Barak Structured Trade Finance Fund are yet to be completed.
It continuously denies any wrongdoing, assuring investors that whistle-blower allegations ‘were proven inaccurate’ and media reports inaccurately position them in a negative light.
