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BUSINESS DAY
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Friday 22 March 2019
ANALYSIS
FT
Asset managers slash expenses as ‘feemageddon’ bites
Average expense ratio of US equity mutual vehicles has almost halved since 2000 ees on US equity funds fell to a new record low last year, as relentless pressure from cheaper index-tracking rivals forced asset managers to slash costs in a bid to staunch heavy outflows. The average “expense ratio” of a US equity mutual fund dipped to 0.55 per cent in 2018, down from 0.59 per cent the year before and almost half the cost charged by asset managers at the turn of the millennium, according to data from the Investment Company Institute. Expense ratios track the percentage of assets deducted each year for costs associated with management, record-keeping and other administration.
closures in the coming years. Mr Flanagan said that as many as a third of asset management companies could disappear in the coming five years. In a report on the industry, Morgan Stanley analysts estimated that revenues from actively managed funds in developed markets would shrink 36 per cent by 2023. Some analysts have predicted that as passive investing becomes more prevalent, markets will turn more inefficient, opening up lucrative opportunities for active managers. But with so many fund managers falling by the wayside, outperforming passive funds could become even trickier, Moody’s warned last week. “Over time, only the best
In addition to pruning fees on active strategies, many asset managers have launched competing passive funds at rock-bottom prices to gain market share. The ferocious price war has intensified this year, with investment groups such as BlackRock and JPMorgan Asset Management cutting fees to stay competitive. The phenomenon has been dubbed “feemageddon” by some analysts. Coupled with a massive migration by investors from active funds to cheaper passive ones, it sent the shares of listed US asset managers down more than a quarter in 2018 — the worst annual performance since the financial crisis. “The industry is going through dramatic changes,” said Martin Flanagan, the head of Invesco, in a recent interview with the Financial Times. “Winners and losers are being created today like never before. The strong are getting stronger and the big are going to get bigger.” The stocks of investment groups have rebounded about 12 per cent this year, but industry executives remain gloomy about the sector’s future, predicting a swath of consolidation and even
players will survive, leading to a more difficult game,” the rating agency said in a report. “Similarly, active management could become more difficult over time, as a growing number of belowaverage active managers drop out or see their assets continually decrease.” The report predicted that assets under management by index-tracking funds will overtake those in actively managed funds by 2021. Last year passive equity funds sucked in $472bn, while active ones shed $488bn, according to EPFR. Exchange-traded fund, which have become the most popular form of index-tracking vehicles thanks to their easy tradability, have attracted another $85bn this year, according to Bloomberg data. The average expense ratio of bond funds stayed steady at 0.48 per cent, according to the figures from the Washington, DC-based ICI, but both index-tracking funds and active managed vehicles saw their costs dip last year, with the average expense ratio of the former falling to 0.08 per cent and the latter declining to 0.76 per cent.
ROBIN WIGGLESWORTH
F
Jan Marsalek, Wirecard’s chief operating officer © Bloomberg
Senior Wirecard executives approved transactions in fraud probe Documents indicate Jan Marsalek was aware of €2m transfer investigated by Singapore DAN MCCRUM AND STEFANIA PALMA
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enior Wirecard executives in Germany oversaw and approved four transactions totalling €2m that are at the centre of a fraud investigation by police in Singapore, according to documents seen by the Financial Times. The transfers in March 2018 were routed from the payment group’s Munich bank to a company in Singapore as part of what whistleblowers allege was a fraudulent accounting scheme. The documents indicate that Jan Marsalek, Wirecard’s chief operating officer, was aware of the transactions, which were delayed in February 2018 while German and Singaporean executives awaited key information from him. Documents pointing to the involvement of senior Munich-based Wirecard executives in suspicious transactions in Asia challenge the company’s denials of wrongdoing, which to date have received a sympathetic hearing from German regulators and politicians. Last month, after Wirecard’s share price nosedived following FT reports, the German regulator BaFin ordered an unprecedented ban on short selling of the company’s stock. BaFin also announced an investigation into market manipulation, following a complaint that shortsellers were aware of negative press coverage ahead of publication. However, after the FT’s articles, the Commercial Affairs Department of the Singapore police said Wirecard and 11 “transactional parties” were under investigation in a probe of suspected forgeries, falsified documents, money laundering and round-tripping of funds, according to a court submission this month. The court filing by prosecutors stated there were six Wirecard employees in Singapore suspected of “arrestable offences”, including Edo Kurniawan, the group’s head of international finance, who oversaw the group’s accounting across Asia and the Pacific. Fresh details of the sequence of events show how executives in Germany worked with the 33-year-old Mr Kurniawan to effect the March 2018 transfers totalling €2m. Days after the last payment went through, a whistleblower approached Wirecard’s legal team in Singapore and described the alleged roundtripping scheme. Regulators in Hong Kong had requested an injection of €2m into an entity Wirecard was using for a licence application to issue prepaid cards. Once the Hong Kong authorities were satisfied the capital had arrived, Mr Kurniawan’s alleged plan was to send the money on to
a purported supplier. The outside company, documents show, was then expected to send the cash on to Hermes, a Wirecard business in India which needed funds to resolve an overdraft issue. To auditors, the flows out and in would not appear connected. As the FT has previously reported, a whistleblower’s account of the scheme was contained in a preliminary report from the law firm Rajah & Tann, detailing alleged instances of forged documents and accounting irregularities, delivered to the company on May 4 2018. After the FT revealed the existence of the inquiry in January this year, police raided Wirecard’s Singapore office. The value of the German group’s shares has fallen by more than a third, to €13.4bn — a sharp decline from late last year when the then high-flying payments group surpassed Deutsche Bank in market capitalisation. Mr Kurniawan has not been seen in Singapore for several weeks. The company has said an internal investigation last year found the allegations were unsubstantiated, no regulations were broken, and it remains in contact with Mr Kurniawan, whom it said was placed on leave following a holiday. Wirecard has said it intends to publish the results of a separate full investigation by R&T undertaken as good corporate governance — which has so far taken nine months. According to the R&T preliminary report, Mr Kurniawan is alleged to have briefed his team on the Hong Kong to India round-tripping scheme at the end of January 2018. On February 8, he had dinner in Germany with Thorsten Holten, Wirecard’s head of treasury, documents show. At 08:51 the following morning, Mr Holten wrote to six colleagues: “Hi, HK needs the funds urgently!” Mr Kurniawan replied eight minutes later: “Merci!” A three-step plan to move the money from Germany to India was discussed in subsequent emails on February 14. Documents show Mr Holten understood money was to move to and from an intermediary on its way around the Wirecard group. At that stage the proposed intermediary company was Testro Consulting Limited, a Hong Kong entity. On February 15, Mr Holten said: “As soon as you have send me the payment instructions of Testro Consulting, we will initiate the wire.” Testro Consulting’s phone numbers displayed on its website are now disconnected and the address given is an empty office previously used by a corporate secretarial service. Emails to the company this week were not answered.
On February 26 2018, Wirecard executives discussed reasons for a delay. In messages seen by the FT, Mr Kurniawan said he was still waiting for bank details from the chief operating officer. “Unfortunately, Mr Marsalek take longer time to arrange it”, he wrote. On March 12 Mr Kurniawan provided colleagues, including Mr Holten and Stephan von Erffa, Wirecard’s deputy chief financial officer, with the bank details and name of a new intermediary, Inventures Technology. Mr Holten asked for “4 wire transfer requests which can be signed by Stephan and me”. Between March 16 and March 21 last year four payments of €500,000 were made from Wirecard Bank in Germany to the Singapore account provided by Mr Kurniawan, according to documents seen by the FT. It is not clear whether the money was subsequently transferred to Hermes, as executives had discussed. The FT has seen a €2m invoice for “Unionpay Issuing Switch Customisation”, purporting to be from Inventures Technology, dated March 5 2018. The address on the invoice is that of a corporate services firm, which confirmed Inventures was a client and that it had been contacted by the Singapore police. When contacted by the FT, Raymond Sam Wei Wen, the Singaporean owner of Inventures, said in a WhatsApp message sent from a Myanmar number, “I do not have any slight information regarding the matter”. There may be an explanation for executives’ roles in the alleged scheme. In February, Wirecard’s lawyers did not directly address questions on the involvement of Mr Holten and Mr von Erffa and stated an internal investigation had found no laws or regulations were broken. Asked on Wednesday morning to answer similar queries, and questions about the role of Mr Marsalek, the company said it would need two days to respond, but did state: “As previously noted to the FT, the allegations and queries raised regarding our South-East Asian business are old and the article constitutes republication of the same or similar matters based on a preliminary report. The outcome of the full investigation will be available shortly and the findings of that investigation should be awaited before the publication of further speculation. Wirecard is preparing for its annual results and therefore is not in a position to respond immediately to specific questions raised by the FT regarding these issues which appear to be designed to attack the company with further insinuations and unjustified accusations.”