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Tower retains Morgan Grenfell

Tower Trust Services has decided to retain Morgan Grenfell as its international equity manager despite the manager being caught up in a United Kingdom funds management scandal last year.

Tuesday, July 14th 1998, 12:00AM

by Philip Macalister

Tower Trust Services has decided to retain Morgan Grenfell as its international equity manager despite the manager being caught up in a United Kingdom funds management scandal last year.
UK authorities froze three of Morgan Grenfell's funds after it was revealed there had been trading irregularities. Tower's Spotlight Europe Fund directly invested into one of those funds, the MG European Growth Fund.
It was discovered that the manager had breached British investment regulations regarding the holding levels of certain stocks, and sophisticated cover-up mechanisms had been used to disguise the holdings.

Essentially the manager had bought securities of companies with no underlying businesses, and the values given to these securities were inflated, pushing up the value of the trust and its past performance.
After the scandal was revealed MG's parent company Deutsche Bank bought the securities in question at their inflated valuations. In this process Tower received $2.8 million in compensation money for its 1500 investors caught up in the scandal.
Tower Trust managing director Peter Fredricson says Tower reviewed the management of its international assets once the compensation issue was resolved.
A worldwide search produced a shortlist of four managers and in the end MG came out on top.
"The key to our final decision was the superior global returns that Morgan Grenfell has been achieving," Fredricson says.
According to FPG Research Tower's Spotlight Europe Fund, which is managed by MG, was the top performing managed fund in the June quarter with a return of 14.13 per cent after taxes and fees.
Likewise four of Tower's five international funds are in top 10 positions in their asset sectors according to IPAC.
Fredricson says MG has better control systems in place following the scandal and these have been developed under the watchful eye of UK investment watchdog the Investment Management Regulatory Organisation.
"This factor in particular makes us very confident of their continued ability to add value to investors while ensuring the strongest compliance to our fund management mandates."
Other positive factors were the decision of Deutsche Bank to stand behind MG, and MG being crowned fund manager of the year by UK publication Financial News.
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