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Can Brash still make cash?

Friday, March 5th 2010, 11:48AM 16 Comments

by Philip Macalister

I attended the Morningstar Fund Manager of the Year Awards during the week and there was one topic on everyone’s lips. It wasn’t who was going to take out the gongs that night, but what was going on at Huljich Wealth Management. A couple of people did wonder if Peter Huljich was going to turn up on the night. Who knows, before all this news broke of what had happened Huljich could have been in the running for one of Morningstar’s awards. The unanimous theme is what had been done was wrong. The funny thing though is that it was wrong, but wasn’t a situation where investors were being ripped off. The closest, I think you can come, is that people signed up to the fund under false pretences. They were sold on returns which it turns out are questionable. There are still unanswered questions though. For instance, why didn’t Brash and Banks know what was going on in the business? They are directors and sign off accounts. They are not scot-free on this one and have some explaining to do themselves – although I note an explanation is not likely to be coming anytime soon. Brash makes a point in his press release that says “some of these allegations (made against Huljich) are unfair and some are untrue.” It would be helpful if he explained them. Secondly I don’t think changes in the rules around funds would ever prevent this sort of thing happening in the future. The only likely outcome is that penalties for anyone caught could be tougher. I also note many people have jumped on this story to push their own agendas – particularly the business presses page three pinup Gareth Morgan. Surely we can find someone with less conflicts of interest? Added to that, Morningstar used it as a hook to push its call for fund managers to disclose all their holdings. I do have to defend the research houses though. They can’t be expected to audit every managers’ books to confirm the data sent to them. That is ridiculous. The other oddity here is that Brash is now running the show and is chief investment officer. Sure he ran the country, and used to print money, but can he manage money for investors? We will be watching the returns to see.
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Comments from our readers

On 5 March 2010 at 2:35 pm Denis said:
I think the selling of a product on the back of false returns is very wrong. Tens of thousands of people joined after being given false information about the investment prowess of this company.
So I think they were ripped off, certainly.
This was not an admin slip-up or an accounting oversight.
You don't accidentally do stuff like this.
On 5 March 2010 at 4:11 pm Phil M said:
Peter obviously shouldn't have done what he did. I would find it hard to believe that a whole bunch of people signed up just because of the returns published.
But if only every other fund manager put cash into their funds when they made a mistake where the investor had suffered. How good would that be!!
It'll never happen of course so in that vein Peter H is one in a million.
On 5 March 2010 at 4:57 pm Kimble said:
"I would find it hard to believe that a whole bunch of people signed up just because of the returns published."

Really? Seriously?
On 6 March 2010 at 4:55 am Colin said:
Surely Morningstar need to also be made accountable in this debacle plus Peter Huljich should spend time in jail. Morningstar calculate returns based on their own methodology i.e. these are their returns being published. The fact that the return building blocks (supplied by fund managers) are false should be picked up in Morningstar's checks and balances. Hopefully with Morningstar getting a new CEO - the previous CEO had no interest in New Zealand and treated doing business here with a contempt bordering on arrogance - they can get their act together and supply returns the market can rely on
On 6 March 2010 at 8:43 am Denis said:
Sorry Phil, but your response beggars belief.

Those thousands joined Huljich KS *precisely* for the reason that the performance figures were far in excess of the market. This was their main selling point. It was all over their documents and their website. To get those excessive returns, it cost Peter Hujlich a fraction of what a good marketing spend would have been. So why isn't this fraud? Why aren't people more angry about $70m + of taxpayers money being spirited away like this?

Is there some part of us that admires these people? I don't get it.
On 6 March 2010 at 12:16 pm Denim said:
Jail time for giving money to ppl? You're a joke.

Fraud? I don't get it, if they were the bottom performers like Gareth Morgan, pretended they were the top, got 70,000 customers and then lost their money I can understand fraud and anger at taxpayers money being spirited away. But when they were already the top performing scheme without any compensation and are still among the very top performing schemes without further compensation what is all the hate about?

I agree with Phil M, we've just crucified someone who's one in a million, how the hell are we going to catch up with Australia when we devastate our own companies with so much tall-poppy syndrome and such a tabloid news media?
On 6 March 2010 at 11:15 pm Tied Agent said:
Our industry is based on the promise of diligence and trust. We need faith in product suppliers and we need to trust what they say and do. Sadly Peter Huljich did not just let himself down, he let down his business associates and ultimately the whole of the industry was let down. I am sure Peter Huljich sincerely regrets his rash actions and has called the ultimate penalty on himself by resigning. It is a silly notion to claim Peter Huljich actions were those of a fraudster. I also sincerely hope rationale debate over this issue will result in a greater level of transparency for all fund managers.
On 7 March 2010 at 9:29 am Denis said:
Completely agree. Without the extra payments they still would have been top performer - but not *excessively* so. Not enough to convince 70,000 people that they are onto a good thing with a special, Midas-like fund manager. A decision was made to mislead the public. On purpose.

Huljich traded heavily on the fact their performance *far exceeded* the competition. Very few providers have performance stats actually on their Investment Statement - but Huljich did. They had bar charts showing a great big high skyscraper for Huljich and tiddly, teeny-tiny bungalow-sized ones for everyone else.

The language around Huljich's resignation is amusing. Falling on his sword? paying the ultimate penalty? crucifixion? When did this get so noble and biblical? I can't see any nobility in this episode at all.
On 7 March 2010 at 12:05 pm Denim said:
I doubt anyone chose them for being a Midas-like fund manager, more likely because of who the people are and being a NZ owned company. With performance so shocking throughout the recession I'm not surprised others weren't providing performance graphs, although I see Fisher Funds is advertising solely on a high return at the moment, which has managed to get them back up to their starting point.

The reason such language has been used Denis, is because it's been such a witch-hunt from an opinionated media, which is why I've taken an interest. The media is this country is a disgrace at the moment. Tabloids as our leading news papers, it's horrible to see.

Further, I don't quite get it - a decision to mislead? From what I can see the vast majority ($1.15million out of $1.3m) of the compensation was disclosed and a mere $150,000 was left out. I don't see how that makes it so deliberate, especially given performance was already higher than everyone elses. Just smells like nasty competition and misuse of wannabe journalists to me. It seems like most of the people posting are in that industry as well...
On 7 March 2010 at 2:18 pm Denis said:
OK, I will try one more time. That small amount of money injected ramped up investment returns to make their performance look extraordinary. Then they bragged about it to the masses as if they were masters of the investment universe. They could have easily published the true returns but chose not to. If the Powers that Be think that is a minor transgression, then so be it.

Denim, I for one am not a journalist - wannabe or otherwise. How dare you etc.
On 7 March 2010 at 2:29 pm Denim said:
Denis, I meant Fund management industry, you've been a bit too objective to be a journo of today's age.

Did they really brag about it to the masses? I've never seen a single TV or newspaper advertisement from them ever, I'd suspect most people in NZ hadn't even heard of them before the lynch mob started off... I know I hadn't.
On 7 March 2010 at 2:39 pm Denim said:
4,143,279 at 7 March 2006, (Statistics New Zealand final 2006 census count)

"The scheme, which has 70,000 members and more than $117 million invested"

<1.68% of the population is now considered to be the masses? lol
On 12 March 2010 at 7:44 am Independent Observer said:
The Huljich episode highlights a number of serious inadequacies in the NZ industry:
1. That there are plenty of industry folks who are involved in the gathering of assets, who are without any background/training/experience to do so
2. That Kiwi mum & dads are still being lured into investment schemes that involve high profile celebraties who have little/no relevant industry experience
3. That the Kiwi Regulator was once again caught napping at the wheel
4. That Kiwi-saver programs have shifted from mediocrity towards being our next big failing for consumers... how can a population of 4.4m support in excess of 270 various Kiwisaver schemes... who will be the winners & losers over the next decade?
5. That industry peripheral watchdogs (including research houses and Trustees) are rubbish, and should stop being supported. If they had been doing their job effectively, they would have highlighted the inadequacies in the investment process long before it got to this
6. That mum & dad average require a major leap in education before they can confidently appraise appropriate investment options
On 12 March 2010 at 3:08 pm Kimble said:
1. Experience isnt a magic bullet, and I am not sure about there being plenty of rookie managers. Outside of Huljich who are you talking about?
2. Celebrity endorsements work, and always will. Dont say you didnt try the Lomu burger from McDonalds. Not something that can be fixed unfortunately.
3. You will need to be more specific here. What rules did Huljich break to cause a regulator to get involved?
4. Arent you just tarnishing the entire industry with the Huljich brush? There may seem like a lot of schemes but some schemes will disappear, a couple already have. I think you are also getting confused between the number of schemes and total number of funds. There will appear to be a lot of funds because each scheme provider needs to offer a range of options for their participants. The winners and loser over the next decade are most likely to be so because of market movements than anything else.
5. In Huljich's case the unit prices were actually correct and they did reflect the returns investors at that time received. The problem is that there isnt enough transparency in KiwiSaver to pick up what Huljich did. The only way for the people to really see what they did would be to have access to their transaction records, or at least what their specific stocks were.
6. I dont see how education was a problem here. What did investors do wrong?
On 12 March 2010 at 8:11 pm Independent Observer said:
Thank you for responding 'Kimble' - at least you're thinking about the issues here.

Believe it or not, experience in many walks of life counts. Unfortunately we are both involved in an industry whereby many of the participants are myopic (at best) or unaware of how to effectively operate an investment/wealth management business. Unfortunately for many investors, the preservation and growth of their retirement savings is not merely an outcome of market movements as you suggest. The reality is that whilst forces are attempting to drive the NZ financial services industry to catch up with global best practice, the absence of local experience is proving to be a significant hurdle in this process. We simply don’t know what we don’t know – with that statement pertaining to everyone from the media to the regulators to the industry participants to the investors.

When an industry participant broadcasts their perceived expertise to solicit public monies, they are not only representing themselves - but the entire industry. If the financial services industry was serious about enhancing (and potentially preserving) its future, it should be supporting robust appraisals/research of all investment schemes (including Kiwisaver) before supporting these schemes with investor dollars. Further, the industry should not accept lapses in transparency of any kind – irrespective of the intentions. After all – it is the philosophies of transparency and trust that are (at least they should be) the foundation upon which this industry will survive.

And finally – it is not the investors that have done anything wrong here, it is the industry. Hopefully in time, the industry can share the blame with investors who are at least partially educated / informed about simple concepts of wealth management
On 13 March 2010 at 12:26 pm Kimble said:
You can't blame the industry for what Huljich did, the other industry participants didn't have any control over Huljich.
The only thing they can do is comment on it publicly. But when they do come out and say something about it they get accused of being poor sports, or of being jealous of the successful, new kid on the block. There is no winning for them.

If you want to blame the entire industry for what Huljich did you will need to say specifically what AMP, AXA, ING, GMK, Mercer, Asteron, Tyndall, Mint, Fisher, Brook, Tower, etc could have done about to prevent it.

The other thing you need to explain is how the financial services industry can possibly be blamed for KiwiSavers choosing to invest with Huljich. Huljich gained their KiwiSaver clients mostly by direct marketing.

As for experience, it is just as likely that a pile of NZ experience is what is creating the inertia preventing change from occurring. Everyone is just doing things we have always done.
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