This article first appeared in Corporate, The Edge Malaysia Weekly, on November 17 - 23, 2014.
IN reply to a question in Parliament on Nov 3, 2014, the Ministry of Finance (MOF) said the selection of the fund manager to manage the cash of 1Malaysia Development Bhd (1MDB) was based on criteria such as “the stability of the firm, its reputation (and) its track record in investments”.
1MDB had selected Bridge Partners Investment Management (Cayman) Ltd to manage US$2.3 billion (RM7.67 billion) of its cash.
Research by The Edge, however, shows that Bridge Partners (Cayman) is part of Hong Kong-based Bridge Partners Investment Management Ltd (Bridge Partners), whose track record and pedigree is not exactly what it was made out to be in the written MOF reply to Parliament.
Furthermore, documents on the Cayman Islands-registered segregated portfolio company (SPC) where the US$2.3 billion has been invested show that the SPC — called Bridge Global Absolute Return Fund SPC and registered in August 2012 — is a high-risk portfolio, and investors were warned they could lose everything (see “The high-risk nature of Bridge Global Absolute Return Fund”).
The documents also show that Bridge Partners (Cayman) was appointed the investment manager via a tripartite agreement signed between itself, Bridge Global Absolute Return Fund and Brazen Sky Ltd — a British Virgin Islands (BVI)-registered company owned by 1MDB.
Information on the Hong Kong-based Bridge Partners is limited. Unlike established global fund managers, it does not publish figures on its assets under management nor its investing performance.
An investigation by The Edge reveals some interesting links can be established between its management/shareholders and two individuals with a chequered history.
The first is Joseph Wan Chuen Chung, who was suspended by the Hong Kong Securities and Futures Commission (SFC) in 1998 in relation to his role as a financial adviser in a failed general offer for the shares of Tungtex (Holdings) Co Ltd, which is listed on the Hong Kong stock exchange. The SFC found that investors who relied on the public announcements that the acquisition and general offer would proceed suffered losses when it was announced that the acquisition would not take place.
The SFC also found that Wan failed to meet the standards of commercial conduct and behaviour that the SFC expected of advisers in takeover transactions.
The second individual is James Phang Wah, who was jailed by a Singapore court for nine years in 2010 after being convicted of fraudulent trading, falsifying accounts and criminal breach of trust at Sunshine Empire Pte Ltd.
Before explaining how these two individuals are linked to Bridge Partners, let us take a look at its history.
Bridge Partners was formed after a management buyout of Baron Asset Management Ltd in 2008. Among members of the current Bridge Partners management team and shareholders who were also a part of Baron Asset are Monica Lin Wai Yan and Lobo Lee Kwok Ning.
In its FY2013 accounts, Bridge Partners’ shareholders were listed as Lin (0.02%) and CNC Investment Holding Ltd (CNC) (99.98%). CNC is a BVI company incorporated on Sept 11, 2006, and controlled by Lee. Interestingly, its FY2014 accounts show that Lin now holds 99.98% of Bridge Partners while Lee owns 0.02%. It appears that the two have simply swapped their stakes.
To understand the relationship between Lin, Lee and Wan, we have to go back to before the 2008 management buyout.
Historical company filings show that Wan was a direct shareholder of Baron Asset from 2001 to 2007, albeit with a small stake of 0.02%. The remaining shares were held by a few different private companies over the years, including Baron Strategic Holdings Ltd, Baron Financial Holdings Ltd and CNC.
A 2004 stock exchange filing shows that Wan owned 50% of Baron Strategic Holdings, with the rest owned by his wife. This meant that his direct and indirect stake in Baron Asset was fairly substantial.
Wan was also a director in Baron Asset from 2001 to 2004, the same period when Lin was on the board. On the other hand, Lee joined the board of Baron Asset in 2004 when Wan was already on it.
In 2008, Lin and Lee led a management buyout of Baron Asset, and it appears that Wan does not have any interest in the renamed entity.
In linking Phang to Bridge Partners, one has to go back to a May 2008 proposed deal involving Emcom International Ltd (Emcom) and Bridge Partners Finance Ltd (BPF). The former was a company in which Phang had a 75% beneficial interest.
Emcom offered to acquire the entire share capital of BPF for HK$180 million and also proposed that the company’s name be changed to “Bridge Partners Holdings Limited”.
At the time, the shareholders of BPF were Lee (70%) and Lin (30%). BPF in turn owned 51% of CNC, which had a 99.8 % stake in Bridge Partners. However, the deal did not go through or else Emcom would have ended up having a beneficial interest of 51% in BPIM.
Perhaps a fair way to gauge Bridge Partner’s ability to manage 1MDB’s funds would be to look at its track record. Information from its own website, however, shows that it was more involved in corporate finance work than asset management. Between 2008 and 2014, it said it was involved in around 80 corporate finance deals, of which 45 were as an ‘‘independent financial adviser”.
Where the deal size could be determined, Bridge Partners’ three largest deals were between US$100 million (RM330 million) and US$225 million (RM742.5 million). The biggest deal was where it acted as a “financial adviser” in a US$225 million (RM742.5 million) acquisition involving Inno-Tech Holdings Ltd and Redgate Ventures Ltd in April 2012.
From available information, it appears that Bridge Partners is not really a big firm in corporate finance. And in the area of asset and fund management, its track record is even more obscure.
In the case of the Bridge Global Absolute Return Fund, according to its website, it has funds in excess of US$2.5 billion. Considering that US$2.3 billion was from 1MDB, it is apparent that not many others are attracted to the fund.
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