Diversa utilised SQM First Guardian research without subscription
Diversa Trustees has confirmed it did not have a subscription with SQM Research when it utilised a June 2020 research report from the company relating to including First Guardian funds on the Powerwrap investment menu.
The Australian Securities and Investments Commission’s (ASIC’s) statement of claim with respect to Federal Court action against Diversa references the firm’s use of the SQM Research report which, at the time, rated the First Guardian Master Fund (FGMF) as 3.5 stars described as “low investment grade”.
Financial Newswire sought and gained a formal response from Diversa on the issue of whether it had held an SQM subscription.
SQM Research founder and managing director Louis Christopher, told Financial Newswire that if firms did not hold a subscription for the use of his firm’s research then it was unlikely they would have received updates relating to the products being rated.
He said there had been a number of updates issued by his firm relating to the fund subsequent to the research report in June 2020.
The ASIC statement of claim noted that in June 2020 SQM Research had rated the FGMF as ‘Acceptable’, or 3.5 stars, described as low investment grade’.
The statement of claim went on to note SQM’s assessment that the FGMF “was overexposed to certain sectors, and First Guardian investment team had ‘relatively limited experience in managing multi-asset diversified funds’, and the board was not constituted with a majority of independent directors’.”
The ASIC statement of claim said the SQM report also said that the FGMF’s liquidity profile was ‘quite different to a typical Balanced Fund’, a ‘significant proportion of the [Fund] is invested in direct/unlisted assets which are less liquid or illiquid’, and that underlying funds may have lock-in periods.
ASIC’s statement of claim alleges that “despite the limited information and apparent serious risks associated with investment in the FGMF Classes, on 6 August 2020, Diversa’s investment committee approved each of the FGMF Classes for selection as investment options on the Powerwrap Fund investment menu”.
Unrelated to the ASIC action against Diversa, SQM Research is the subject of legal action initiated by ASIC relating to the firm’s rating of the Shield Master Trust.
Christopher said his firm is defending the action.
Wow, they put the fund on a super platform at SQM’s lowest investment grade?? Just wow.