SQM Research withdraws ratings on two PAC Capital funds

Research and ratings house, SQM Research has taken the tough step of its withdrawing its ratings on two PAC Capital funds and downgrading two others.

SQM announced to subscribers today that it was withdrawing its rating on the PAC Global Fund – Retail Class and the PAC Global Esports Fund – Retail Class.

It said it was downgrading its rating on the PAC Global Balanced Fund – Retail Class and the PAC Global Growth Fund – Retail Class to 3.25.

All four of the funds had previously been on “Hold” following concerning media reports about PAC Capital.

SQM said its rating action today followed:

• Proposed changes of the investment strategies of PAC Global Fund and PAC Esports Fund.
• Increased turnover in key personnel managing the Funds.
• Increased governance and management concerns.

SQM Research said, “PAC Capital has proposed changing the portfolio structure of the PAC Global Fund and PAC Esports Fund. SQM Research understands that this includes changing the investment strategies employed to manage the Funds”.

“The proposed changes will not be implemented until they have the necessary approvals and the product disclosure statements for the Funds have been updated. PAC Capital has advised SQM Research that these steps should be finalised in the near term.”

“As a result of the proposed investment strategies and the strong likelihood they will be passed, SQM Research has changed the rating of the Funds to withdrawn with immediate effect.

“The manager’s turnover of its investment team, previously noted by SQM Research, has risen. Following the recent arrival and thereupon, abrupt departure of CIO, Sunny Bangia, SQM Research as current heightened concerns about the ongoing stability of the investment management team.

“SQM Research, as part of its recent enquiries following the hold rating placed on the funds, requested information surrounding attribution of performance returns on a related wholesale version of the ‘Esports’ fund. This is a fund not previously rated by SQM Research, yet is closely associated to the rated retail version of the said fund,” it said.

“This request for attribution information was denied by the management of PAC Capital. As such, SQM Research has current heightened corporate governance concerns surrounding the operation of all the presently rated funds and has overall concerns of the quality of management given recent decision making and communications.

“Following on from the above concerns, the ratings (previously 3.75 stars, moved to hold) on the PAC Global Balanced Fund (retail class) and the PAC Global Growth Fund (retail class) have been downgraded to 3.25 stars,” SQM Research said.

The SQM report explained that 3.25 stars meant that “caution required. Not suitable for most Approved Product Lists.  In SQM Research’s opinion, the potential for future outperformance in the medium to long term is very uncertain. SQM Research has identified weaknesses which need addressing in order to improve confidence in the manager.”