Sky News presenter: “So, a 200 per cent return – correct me if I’m wrong – within the first year of launching this …”
Fund manager:”Well, no, now that’s a bit excessive. It’s about 130 per cent in 15 months.”
This interview was recorded on February 3, 2009. The fund manager is Peter Rice, the chief investment officer of Titanium Asset Management. Rice was talking about the investment returns of Titanium’s All-Weather Fund.
There was a catch, though; although the returns were impressive, they weren’t actually real.
Observation one: you can tell Sky News anything – even that your fund notched up 200 per cent at the nadir of the global financial crisis – and they’ll believe you.
Observation two: if something sounds too good to be true, it probably is.
This story is a few years old now but we have just noticed Peter Rice is back with another vehicle called Pokfulam Investments. This time, the claimed returns are not as gigantic as were those of Titanium but they are nonetheless huge.
“The (Pokfulam equity pricing) Process has been used in the management of an absolute returns fund, achieving outperformance of the Morgan Stanley Asia ex Japan Index of an average of 19.6% pa between June 1997 and February 2000.”
But back to the Titanium story:
From March 2009 to December 2012, the process was also used as the investment basis for an ASX200 Market Neutral fund, producing outperformance of the ASX200 Accumulation index of 6.48% p.a.
On Christmas Eve, 2008, just as Santa Claus was briefing his elves on product distribution for the Big Day, the statutory disclosure statement for the Titanium All-Weather Fund was filed. The auditor of the fund was listed in this PDS as one William Tomiczek: ”Approved and registered with [the] Australian Securities [and] Investment Commission (ASIC).”
As it turns out, this wasn’t real either. Tomiczek went to great lengths to advise the regulator that he was not the auditor of the All-Weather Fund and that he had no connection whatsoever with Titanium.
Firstly, he lodged a telephone complaint, reference number 4752383. No joy there. Secondly, he sent a fax. That was in August, 2009. Finally, in June last year, after three Christmases had passed not being the auditor of the All-Weather Fund, Tomiczek had his solicitor made contact.
One more Christmas slipped by and … you guessed it, auditor registration 1425 was still there even after ASIC had been contacted by a hedge fund manager and whistle-blower, John Hempton of Bronte Capital, alerting them that something might be awry.
Hempton had stumbled across Titanium while he was exposing the Astarra/Trio scandal two years ago.
After reporting Astarra to the regulators, he discovered the beginnings of a relationship between Titanium and the (now jailed) Astarra frontman Shawn Richard. Titanium had announced a deal with Astarra to do a White Label fund. Just weeks later, Astarra blew up and Titanium soon put out a press release saying it had no relationship with Astarra.
”I rang them up (before I reported Shawn to the authorities) just to suss them out. They had a funds management arm (Titanium Asset Management) run by Peter Rice that had astounding results,” says Hempton, whose Bronte Capital hedge fund short-sells dubious stock situations, mostly offshore.
As it turns out, Titanium’s results – until the month that Peter Rice did the Sky TV interview, February 2009 – were ”hypothetical”.
This was confirmed by its real auditor, Mark Schiliro, this week and by a Titanium fund manager, Paul Stanley.
It is obliquely disclosed via a footnote in the PDS, lurking below the 193.1 per cent ”cumulative returns since inception”:
”Prior to 24th February 2009 the monthly investment returns detailed below (highlighted in grey) confirm the result of forward testing the TAM ASX200 All-Weather Fund’s investment methodology.”
Ah … ”forward testing”! Why would you require an auditor and a custodian (Citigroup) to sign off on a set of hypothetical returns?
Is this not akin to Qantas seeking the approval of CASA to operate a fleet of model aircraft, or Woolworths applying for a DA to erect a shopping centre made out of Lego?
There is no evidence that the Titanium returns since February 2009 are suspect. Indeed, the performance of the fund fell off a cliff when it departed the hypothetical world for the real one.
Neither the 40.2 per cent return in October 2008, nor the 20.5 per cent for February 2009 were ever replicated, even though Titanium chose, peculiarly counter to global industry practice, to report its returns in gross rather than net terms.
If there is one drawback of the financial press, it is that it can be a tad dull, dwelling, as it does, on business people and the two base instincts of fear and greed.
Today, however, we can report a more exotic angle: that the founder of Titanium is no other than Andrew Blanchette. Blanchette is the former special operations police officer who had been the childhood sweetheart of the Sydney model Caroline Byrne.
Byrne fell to her death from the Gap in 1995 and her boyfriend of the time Gordon Wood, the chauffeur to Rene Rivkin, was sent to jail for murder. Before Wood came on the scene, Byrne had gone out with Blanchette for seven years.
Blanchette was convinced, he said at the time, that Byrne had been thrown off the Gap by two men. Last year, Four Corners cast doubt over the evidence at the Wood trial, suggesting that Wood was not guilty.
It is little wonder – what with the trauma of the media coverage which attended the death of Caroline Byrne – that Blanchette declined to talk with BusinessDay for this story. Peter Rice was also unavailable.
Now the principal of the Titanium Group, Blanchette also heads a real estate division and holds two financial services (AFSL) licences.
Titanium Asset Management is the investment arm and, according to the trade press, the dealer group Titanium Financial Planners ”increased the number of practices it has to 33 with the addition of eight offices in New South Wales and Victoria over the space of a week”.