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View the article online at http://citywire.co.uk/wealth-manager/article/a735415

Rathbones grapples with £2m stake in stricken China trust

by Robert St George on Feb 25, 2014 at 14:19

Rathbones grapples with £2m stake in stricken China trust

Rathbone Investment Management still holds a position worth more than £2 million in the troubled ARC Capital Holdings fund, despite halving its stake before the emergence of a serious dispute between the trust’s board and manager.

Rathbones confirmed that on 10 January it had taken its stake in ARC – a London-listed fund that invests in Chinese private equity, which has a market capitalisation of £117 million – down from 5% to 2.3%.

However, Rathbones disclosed the sale only last week, following news of ARC’s boardroom spat.

A spokesperson for Rathbones told Wealth Manager that the matter was sub judice and so the firm could not comment.

On 6 February ARC’s board published a letter attacking its manager as ‘negligent’ over a 2010 investment. That year the manager – a firm called ARC Capital Partners that is owned by PAG, one of Asia’s largest fund groups – transferred almost £50 million to a subsidiary of the giant Orient Group for the purchase of one of Orient’s businesses.

The deal subsequently fell through, but the money was not returned to ARC. The fund has taken the matter to an arbitration commission in China, which is yet to conclude.

In parallel to this, ARC’s board undertook its own investigation into the transaction which claimed that ‘the investment manager has been negligent and/or breached its investment management agreement with the company’.

The board alleged that the £50 million ‘was paid away, without security or any escrow arrangements, and for merely a contractual promise to transfer all of the consideration shares at a future date if certain pre-conditions were met and, if they were not met, to return the money’.

On 7 February ARC Capital Partners resigned as manager of the trust.

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