Trading in the Oceanic Australian Natural Resources fund was suspended by Capita Financial last week.
The decision by Capita, which acts as the firm’s authorised corporate director (ACD), to halt trading in the unit trust for up to 28 days left both the fund’s management and stakeholders in shock.
John Fearon, director of Oceanic, says he feels let down by Capita as the decision was taken unilaterally, without any consultation or explanation.
“I had no knowledge that this was going to happen whatsoever,” says Fearon. “We’ve had a torrid time and have had some liquidity issues, but no worse than others in our area.”
In a statement Capita said trading was temporarily suspended because difficult market conditions had made it hard for Oceanic to “price reliably a significant portion of the fund’s portfolio, due to market illiquidity for the stocks in question”.
Fearon, however, strongly disagrees with his company’s ACD as he says he was meeting redemption demands and planning to merge the two funds offered by Oceanic to protect shareholders.
“We’ve been managing big redemptions from key large shareholders and we’ve communicated to our remaining shareholders that we’re looking to merge our two funds to protect their interests,” he says. “Capita Financial have just abandoned me and I’m appalled.”
Investors in the fund have expressed similar surprise at the move, which not only prevents them from benefiting from any short-term upside in current volatile markets but also stops them moving out of the fund. One investor, who declined to be named, said it had scuppered plans to reduce his exposure to natural resources.
The fund has lost 67.5% over 12 months to October 22, falling 56% over the past three months after a sharp downturn in June wiped out gains.
Fearon warns that Capita’s decision could end up costing shareholders rather than protecting them as it further undermines confidence and will mean those trying to exit the fund will have lost as much as half their investment.