Protea Capital Management, founded by Jean Pierre Verster, has warned investors of a material misstatement relating to the reporting of investor performance.
Protea Capital Management is the appointed investment manager to a number of hedge funds hosted by Sanne Manco, including the Protea Global SNN Retail Hedge Fund.
Sanne outsources the performance reporting of these hosted funds to an associate, Apex, which Verster explained is to blame for the problem.
In September 2021, a prime broker to local hedge funds notified Apex that it would change the funding on accounts used to trade in offshore instruments from the underlying currency of the respective instruments to U. S. Dollar funding.
This change added additional foreign currency volatility to all the affected portfolios, as the trading accounts used to be funded in the same currency as the instruments they traded.
Apex interpreted this as only a change in reporting (rather than a profit/loss methodology change) and therefore did not correctly implement the change when calculating the fund’s performance.
The performance reporting would have to include the effect of foreign exchange gains and losses from converting the price of offshore instruments from their underlying currency to the broker’s base currency – U.S. dollars.
Previously, the performance reporting on these offshore instruments revolved purely around the gains or losses made on the investment in its underlying currency, which was then converted to U.S. Dollars.
The newly incorporated USD funding changed the performance calculation of the investment to include both the gain or loss on the instrument and the gain or loss on foreign exchange movements to US Dollars.
Apex did not implement these changes in reporting since October 2021. The U. S. Dollar has significantly strengthened since then, causing material overstatements from what Apex reported on fund statements.
The reporting error was not picked up sooner because Apex did not diligently perform cash reconciliations on the impacted funds.
The erroneous reporting caused the net asset value of the global retail hedge fund to be overstated by a cumulative 9.08% since October 2021.
It is important to note that the Protea Global SNN Retail Hedge Fund is not the only fund affected by these changes.
Some other funds administered by Apex are influenced in the same way but less materially.
To prevent future misstatements, Sanne Manco has engaged with the Prime Broker and agreed that material changes, such as changes in the funding currency, must be directly communicated to Sanne Manco.
Protea Capital Management has laid a complaint against Apex with the FSCA. While the FSCA has agreed that a restatement of the historical performance would be the appropriate course of action, the FSCA’s investigation into Apex’s conduct is continuing.
Daily Investor asked Apex for comment regarding the reporting error. Apex Group responded, saying it is company policy not to comment on any confidential matters relating to its clients.
The below table shows the performance of the Protea Global SNN Retail Hedge Fund’s previously reported performance.
Protea Global SNN Retail Hedge Fund’s previously reported performance*
Protea Global SNN Retail Hedge Fund’s restated performance*
*All performance figures above are the responsibility of Apex, as appointed by Sanne Manco.