You may be aware of the recent publicity surrounding Ross Asset Management Ltd and the subsequent announcements from the Financial Markets Authority (FMA), regarding the report they received from Price Waterhouse Coopers (PWC). This report paints a damming picture of the investment process, systems and controls within the Ross Group.
There is still some conjecture as to what exactly went wrong with the Ross Group. You may also wonder whether the same factors that allowed these events to occur could possibly exist with organisations we deal with on your behalf.
The PWC report identifies a number of factors about the operations of Ross Group, which appear to have had a major influence on the adverse outcomes experienced by its investors
For example:
- Mr David Ross was the sole Director and appears to have had sole responsibility for all research and investment decisions.
- Mr Ross also appears to have been the only party who interacted with investors.
- The Ross Group appears to have had inadequate internal governance and management systems generally, and in particular appears to have had wholly inadequate investment process.
- None of the Ross Group entities were audited by a firm of external auditors – in fact, there does not appear to have been any independent supervision on any of the operations of the Ross Group.
We asked NZ Funds Management Ltd, a company that we deal extensively with on your behalf, to contrast these examples with how they operate.
Here is their response:
- Our Board is made up of four experienced executives who, as part of their role, have oversight of a comprehensive internal risk management framework. Within this framework, key members of the senior management team have specific responsibility for managing various areas of risk within the business.
- We ensure that no one person holds sole responsibility for all investment decisions. Our investment team, overseen by our Chief Investment Officer and ultimately by the Investment Committee, comprises seven people involved in the management of the Portfolios. While each is responsible for the specific portfolios they manage, the team is structured in such a way that no major investment decisions can be made without the application of a rigorous research, peer review, approval and oversight process.
- We ensure that there is proper separation of duties within the company. Different people and teams are responsible for each of the core functions of the company – investment, settlements, valuation, accounting, risk management, compliance, advice and client servicing.
- Both NZ Funds Management and each of the portfolios we manage are subject to an annual audit conducted by the international accounting and audit firm Ernst & Young. Ernst & Young (or its predecessor firm) has audited NZ Funds Management and the portfolios it has managed since the mid 1990’s. A key part of the audit process includes verification of the existence and value of the securities held with each Portfolio.
- Each of the Portfolios is overseen by an independent Trustee, Perpetual Trust Limited.
- The majority of assets within each Portfolio are held by an independent custodian, Citigroup.
- We are actively regulated by the Financial Markets Authority (FMA).
We trust that this information is helpful in explaining the difference between how a modern regulated investment management firm operates compared to the likes of the Ross Group.