TFS Management Company clients may lose about $10 million of their investments, as the asset manager’s sister company, Tetrad Investment Bank faces the threat of liquidation. The threat is due to the fact that TFS invested most of its clients’ money into money market investments through TIB, placed under final judicial management in April this year.
TFS, under final liquidation and TIB, are subsidiaries of Tetrad Investment Holdings. According to the TFS liquidator’s report, recoverability of investments in TIB remains doubtful. The money market investments by TFS in TIB on behalf of its clients were not secured, making TFS clients concurrent creditors in a troubled bank, which might be wound up.
“Concurrent creditors are paid from any proceeds of unencumbered assets that remain after preferrent creditors have been paid in full,” reads part of the liquidator’s report. The liquidator said that subject to placement of TIB under judicial management TFS trustee, Broc Financial Services, filed a claim of $10,8 million, whose recoverability is doubtful.
The $10 million that could be lost to the incestuous investment relations between the sister companies constituted about 60 percent of TFS entire clients’ investment portfolio.
The balance of the asset manager’s total portfolio holding of $16,2 million, which was riskily concentrated in the money market, were held in equities and property investments. According to the liquidator, the Securities Exchange Commission of Zimbabwe repeatedly expressed reservations on the concentration of risk relating to money market investment, as well as the impact of the liquidity challenges at the bank but no remedial action were put in place by TFS management, the Broc Financial Services.
As at May 8, 2015, outstanding payments to clients who had submitted disposal orders stood at $7,2 million, which raises the spectre of a more substantial loss. The risk that now confronts TFS clients resulted from unethical conduct of directors as they made TFS to mobilise funds for TIB and group before creating unsustainable funding structures.
The liquidator said forensic investigations will be intensified to ascertain “if any directors of TFS could have incurred criminal liability” while the regulator and clients could consider assessing the suitability of the Trustee in light of significant impairment of investments. TFS is insolvent as its liabilities exceed assets by $1,5 million. Before the liquidation, there was litigation that took place after the company failed to discharge its financial obligation resulting in a number of assets being attached. At group level, its three subsidiaries are under judicial care.