City Financial to jettison flailing absolute return fund

£146m fund suspended dealing on 4 March

Photo by Nathan Dumlao on Unsplash

City Financial has agreed to offload its flailing absolute return fund and a multi-asset range with £250m worth of assets between them to boutique manager Garraway as it looks to get a handle on its debt situation, Portfolio Adviser understands.

Absolute Equity managers David Crawford and Ade Roberts are reportedly moving across to Garraway and will continue managing the fund. Mark Harris who runs the multi-asset range will also be joining.

The Absolute Equity fund temporarily suspended dealing on 4 March after it was unable to cope with a wave of redemptions following news of City’s financial difficulties.

Fall from glory

Willis Owen head of personal investing Adrian Lowcock said the move will undoubtedly be disappointing for City Financial, considering Absolute Equity had been a high-profile fund in the past.

Although once a bigger name in the sector, Absolute Equity has significantly lagged peers in the IA Targeted Absolute Return sector in recent years.

The fund was the worst performer out of the 90-odd funds in the sector over one-year recording a 37.25% loss compared with the average sector loss of 2.04%.

It has delivered an annualised return of 10.2% since inception in March 2008, according to the most recent factsheet on the company’s website.

“The sale of the assets leaves City with a core, but small, multi-asset range so the disposal is a significant move,” Lowcock added. “However, given performance has been weak it makes sense to act to address this and focus the business on areas they can add value.”

Liquidity issues?

Brian Dennehy, managing director of Dennehy Weller & Co, said the transfer might help improve confidence for retail investors. However, he said a change in ownership does not solve the potential liquidity issues the fund may be suffering from.

Absolute Equity has sold down its positions in seven different holdings before and after the fund suspended dealing, according to regulatory filings over the past two weeks.

The fund cut its stake in Horizonte Minerals from 8.19% to 0.29% and ditched its entire 5.3% stake in Enteq Upstream on 1 March. The following week it offloaded its entire 13.25% stake in Aim-listed Rose Petroleum on 5 March, as well as its 4.91% position in Ten Entertainment Group and 9.73% holding in Ramsdens Holdings.

However, the fund upped its position in Cabot Energy from 8.67% to 13.45%.

City Financial has declined to comment on the transfer or on the liquidity of the Absolute Equity fund. Garraway was contacted but did not respond in time for publication.

A January factsheet for the fund shows it had an almost equal weighting of small and mega cap stocks at 30.8% and 30.5% of the portfolio respectively. Meanwhile mid-cap and large-cap stocks made up 19.7% and 16.7% of the fund.

The fund’s objective states it invests mainly in equities and equity-related instruments, but it can invest in cash, near cash and non-UK securities “from time to time”.

News broke last week that City Financial filed a notice of its intention to appoint an administrator after a difficult 2018 in which assets under management slumped and its debt ballooned.

The firm’s assets under management more than halved by the end of 2018, falling from $3.3bn (£2.5bn) 12 months earlier to $1.2bn. It also reported a loss before tax of £16.7m for 2017, up from a £1.4m loss in 2016, due to rising costs.

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