Investors claim Bank of Valletta earned €7.5 million in fees on property fund

Investors and two finance firms, Hogg Investments and Finco Treasury Management, are claiming Bank of Valletta and subsidiaries Valletta Fund Management and Valletta Fund Services, could have earned up to €7.5 million in fees from a fund that has lost 75% of its value.

Some 240 investors could be battle-ready for a legal showdown, after two separate judicial protests were filed against the BOV group and its partners Insight, which managed the Multi-Manager Property Fund, once valued in excess of €84 million, and which today has been depleted by major losses to the €30 million – of which only half are liquid.

As custodian of the fund, BOV was paid 0.03% of the net asset value of the fund annually, and a further 1.65% payable to VFM and VFS as management and registrar fees.

The investors of the fund claim BOV could have earned up to €7.5 million in fees since September 2005, calculated on the higher value of the investments.

“These fees were calculated in earlier years on the basis of the value of the underlying investments, which values were written down drastically to reflect the impairment losses sustained on these investments,” the private investors claimed in their protest.

“It is apparent that in previous years [BOV] were earning fees unjustly on the higher value of investments, which subsequently had to be written down, at the expense of claimants.”

Investors have also claimed that as custodian of the fund, which was being managed by its own subsidiaries, BOV had a conflict of interest in the way it supervised the investments.

BOV has denied accusations against it by the investors, saying the financial crisis in 2007 and 2008 had been largely responsible for the vicissitudes of the property fund.

The Multi-Manager Property Fund invested money in what was touted as the best pick of real estate property funds from around the world. But in a judicial protest filed by Finco Treasury Management, BOV was said to have not been forthcoming with investors on the criminal investigations for fraud on a Jersey firm, Belgravia, whose shares had been suspended by the Jersey Financial Services Commission.

While the property fund had been portrayed as ‘a low-risk fund with low volatility’, it transpired that a a €17 million investment in the Belgravia European Property Fund has lost in excess of 90% and is today estimated at €1.3m, while other investments originally valued at some €47 million have fallen to €18.5 million.

The Malta Financial Services Authority is claiming it will not go into the specifics of how licence holders of the La Valette Multi-Manager Property Fund acted when a criminal investigation by the Jersey regulator into the Belgravia firm was seemingly not communicated to the fund’s investors.

“As the issues raised by your questions are now the subject of a judicial protest, and in light of the fact that the regulator and its employees are required to treat any information acquired in the discharge of their duties as confidential, it is not prudent for MFSA to respond to questions on specific licence holders,” a spokesperson for MFSA chairman Joseph Bannister.