Chronicle of property fund investment

Exactly five years ago, worth €20,000, I was attracted to join others in Bank of Valletta’s much acclai­med La Valette Multi Manager Property Fund. I was quite happy to pay the bank €450 in commission in the realisation that it knew best where it would take us.

I was right. But , sadly, only for the first three years.

Within six months, my worth climbed to €20,889.18 and again to €21,765.01 by the first anniversary, an 8.8 per cent net return, equivalent to an annualised 10.92 per cent according to a colossal press advertisement by the bank itself named Success.

Six-monthly dividends always on the dot. By April 2007, the value went up to €22,689.73 but dipped slightly to €22,431.68 by the following October, exactly two years from my joining the fund.

In April 2008, there was another dip to €21,811.94, which I attributed to the nascent financial turbulence appearing on the global horizon. The bank kept mum and, in May, the dividend was paid normally. The last thing that entered my mind was that the fund had been in troubled waters. Surely not a “property” fund managed by BOV? And “multi-manager” forsooth!

Imagine my disbelief when only three months later (August 2008) I was informed that redemption requests were “temporarily” suspended. But, again, the October dividend was duly received and I was told the value had dropped to €20,113.04, still above my “par”.

However, I did discover that 40 per cent of the fund had been invested in Belgravia. This percentage turned out to be even much larger in the months that followed, by which time even some of the fund’s other investment outlets had attained the Belgravia status.

What, I asked myself in utter disbelief. My memory floated back 50 years when, researching on Britain’s unit trust movement’s revival at the London School of Economics, it was constantly stressed by my interviewees (especially the grandiose M & G pioneer group) that under no circumstances should more than five per cent of any fund ever be invested in any one company or group.

What hurt me more, however, was that BOV never let me know how many other shareholders had been allowed to red-eem their investments by the time the “temporary” suspension was announ­ced. It was only lately that I read that as many as 14,702,538 shares were red-eemed for €16,200,081. At this rate, had I been among the privileged, more than my original investment of €20,000 would have been recovered. But, of course, that would have been at the expense of those remaining unredeemed – the under-privileged whose trust in BoV stayed solid.

In February 2009, I was informed of “some positive developments” but my value dropped to €16,617.50, only to be informed a month later it was then no longer possible to determine the value of any holding, mine included.

The “temporary” suspension continued being extended every six months until a ray of sunshine finally appeared in May this year: “slight improvement... leading to a recovery of property prices”, by which time the value had plummeted to €10,124.95 on the redesignation of the shares into two classes: (1) the Main Pool of Assets and (2) the Side Pocket Assets. Half of my investment wiped out because I wasn’t among the “privileged”, albeit loyal to BoV.

I also happen to hold shares in the bank itself and I have not joined any of the groups that have filed a judicial protest against the bank’s directors. And I have no intention of doing so.

I do, however, care for BoV’s reputation. It is Malta’s foremost bank and I hope it will stay so. I expect the board of directors to do more than just wait for the Malta Financial Services Authority’s findings while challenging the protesters to file a lawsuit, even if, eventually (in years to come judging by the likely duration at our courts) the bank will win. In these intervening years, the bank’s solid reputation will be seriously dented, a situation far worse in financial terms than through any gratuitous compensation announced now.

A win at the courts could well turn out to be a Pyrrhic victory, if not a narrow squeak.