Auditors are probing whistle-blower complaints about Barak Fund Management as the firm seeks approval to restructure a $1 billion trade finance fund that’s left investors stuck with hard-to-sell assets.
Some employees lodged complaints with the Mauritius-based investment firm last year, according to people familiar with the matters. Two raised concerns about the quality of collateral linked to some loans that it made, while another warned about the overvaluation of some assets, said the people, who asked not to be named because the details are private.
The firm acknowledged that three complaints were received, with two relating to “allegations of impropriety,” in an emailed reply to questions. The concerns were raised long after the alleged events linked to the complaints took place and days after the firm began a redundancy process in April last year that affected two of the employees, the company said.
“The whistle-blower allegations were reviewed by the fund’s compliance officer, and a second review by an external audit firm will be completed soon,” a Barak spokesman said in a statement. “No wrongdoing, corruption, fraud or criminal activity or any other matter impacting the financial statements of any of the funds has been identified.”
Barak barred investor withdrawals from its flagship fund last April as a large chunk of its holdings became hard to value. The firm, which finances cash-starved companies across Africa, is now seeking to restructure the fund by spinning off its illiquid assets into new vehicles. Barak told clients last month that the strategy’s objectives are “no longer reasonably achievable” and it’s seeking to gradually realize the assets, in a document sent to investors and seen by Bloomberg.
Barak said in a separate statement last week that a “high percentage” of investors had shown support for its restructuring plan and expressed confidence that it would be approved.
Catherine McIlraith, a member of Barak’s independent board of directors, also acknowledged the whistle-blower complaints and reiterated they were received some time after the alleged events, in an emailed response to questions. Investors were not informed about the concerns because the board was satisfied that no further communication was required, she added.
“Fairness to investors is the key driver for the process, and we cannot jeopardize the restructuring process by commenting on the status of valuations or collateral,” McIlraith said.
PricewaterhouseCoopers resigned as auditor of Barak’s trade finance fund last year, before completing its 2019 audit, Bloomberg reported last week. While at least one of the whistle-blowers had also complained to PwC, it’s not known if that was linked to the firm’s resignation, the people added. A spokesperson for PwC declined to comment.
The firm’s new auditor, Macintyre Hudson, has further delayed signing off on the fund’s 2019 financial statements. It previously expected to complete the already delayed process by the end of February, according to the restructuring document sent earlier that month.
Macintyre Hudson “did not make a firm commitment to this date and we understand that the volume of work involved has exceeded their initial expectations, resulting in a slight delay,” the Barak spokesman said in a separate statement last week.
Barak’s investment woes are the latest sign of trouble in trade finance. London-based Greensill Capital recently filed for administration after key backers walked away from the supply-chain finance firm over concerns about the valuation of its assets. The events have highlighted potential liquidity issues at funds pitching steady returns through opaque investments in unlisted assets.
Read More: Another Trade Finance Fund Implodes in Echoes of Greensill
In 2019, a separate whistle-blower alleged a potential conflict of interest relating to Barak Chief Investment Officer Prieur du Plessis, who was said to have received cash and use of a motor vehicle from an entity linked to a client in the coal sector, two of the people said. Barak conducted an investigation and resolved the matter after issuing a warning to du Plessis, who said the deal was repayment and collateral for a personal loan, one of the people said.
The allegation, raised with a Barak employee, was made by someone who was never employed by or connected to Barak, the firm said in its emailed reply, without confirming any details. The complaint, that referred to events between 2014 and 2017, “was raised in May 2019, underwent review by independent legal counsel, and was resolved in June 2020 on the basis that there was no evidence of wrongdoing or fraud,” it said.
Barak, started by Jean Craven and du Plessis in 2009, grew its assets and investments rapidly to manage more than $1 billion in 2018 as cash-strapped businesses sought alternative sources of capital after the financial crisis. The fund never had a down month until last March when the pandemic shut down economies across the world.
Some well-known investors have backed Barak, attracted by the prospect of steady returns from providing capital to small and medium enterprises.
Botswana Public Officers Pension Fund, the largest pension fund in Botswana, had invested 1.36 billion pula ($123 million) in the firm as of March 31 last year, according to its latest annual report. The pension fund’s CIO did not respond to a request for comment.
IFC, a member of the World Bank Group, issued a $60 million loan to Barak in 2018 to provide trade and commodity finance to companies in Africa. The loan was repaid last year, according to an IFC spokesperson.
Barak’s illiquid investments comprise more than half of the fund’s assets, in sectors such as coal mining, consumer goods and fertilizer production, according to the restructuring document.
Investors willing to remain with the fund will be transferred into new products, the spokesman said in the statement.
“Those who do not wish to continue will receive an initial cash payment representing the portion of the underlying investments that are liquid and readily capable of accurate valuation, with the rest to be paid out to investors in due course.”
— With assistance by Roxanne Henderson
(Updates with restructuring detail in final paragraph)