Registered in Mauritius, Barak Fund Management Limited is the investment manager of Barak Funds SPC Limited, which was known as one of Africa’s leading alternative credit financiers. Barak Funds SPC Limited is incorporated in the Cayman Islands and offers various fund investments to investors who are predominantly located in Europe.
According to reports made on Bloomberg a few weeks ago, Barak Fund Management has sought approval to restructure a $1billion trade finance fund that has left investors stuck with hard-to-sell assets.
It emerges according to the reports that some employees at the Barak Fund lodged complaints with the Mauritius-based investment firm last year. One concern was about the quality of collateral linked to some loans that the Fund had made while another was about the overvaluation of some assets, according to Bloomberg reports. However, sources in the investment industry say recovering all the investors’ funds will be difficult since the investments were channeled into the hard-to-sell assets, throwing the Barak Fund into liquidity challenges.
The Botswana Public Officers Pension Fund (BPOPF), the largest pension fund in Botswana, had invested P1.36 billion ($123 million) in the firm as at 31 March 2020, according to its latest annual report. This was also confirmed by the BPOPF itself in an interview. In the same interview, the CEO of BPOPF, Moemedi Malindah, acknowledged that BPOPF is aware of the challenges faced by Barak. “Yes, the BPOPF is one of the major investors in the Barak Fund with an investment value of about P1.3 billion,” Malindah said in an emailed response to The Business Weekly & Review.
Asked on what the challenges faced by Barak are, he said they can be classed into two main categories: the operational environment due to the impact of COVID-19 and liquidity challenges. Elaborating, Malindah said trade finance in general is facing a tougher operating environment. “Globally there are instances where product delivery has been reduced by 80 percent,” he went on. “In some instances, there has been total freeze in product delivery. This therefore will more likely result in negative performance of the sector and players in that sector.”
With regards to liquidity challenges, the chief executive of BOPPF said these investments are made with certain liquidity terms. “For the players like Barak to meet such liquidity needs of their investors, it will more likely result in huge cuts for exiting investors,” he asserted. “This risk is for investors with a need for capital during this tough time. “In any investment, there is risk of market loss,” he said when asked about the safety of BPOPF’s P1.3 billion. “BPOPF assets are exposed to the market. We are confident that the trade finance opportunities remain attractive in a medium to long-term outlook and we believe that the investment made is safe to the extent that we remain bullish in the sector and confident that the investment thesis is still intact at Barak.”
Asked what prompted such an investment in the first place, Malindah answered that the investment in Barak was based on the opportunities available in African trade financing. It is an asset class which contributes to a diversified portfolio of investments, of which Barak as a specialist in the area had satisfied BPOPF’s investment criteria,” he added.
To a question about whether proper due diligence was conducted before the investment was made, he responded: “A due diligence was conducted on the Fund prior to investment. This is the practice in the BPOPF.”
Malindah revealed that BPOPF had invested directly in the Barak Fund. The BPOPF has a full investment department that is responsible for ensuring that BPOPF makes sound investment decisions. Mosimanegape Mothibi is Acting Investment and Portfolio Director at BPOPF who is generally in charge of preserving a company’s asset portfolios. Mothibi supervises a team of qualified professionals and helps develop both short and long-term investment plans, recommends investments and assigns assets. Direct investments by BPOPF fall under his portfolio.
Further to that, South African asset and investment consulting firm, Riscura, was given a multi-million pula contract by the BPOPF a few years ago to provide investment advisory services to BPOPF. Riscura’s primary role is provision of objective third-party advice to enable the board of trustees of BPOPF to make well-informed decisions regarding investment of the fund’s assets. The SA firm operates as an independent investment advisory business in South Africa and has expanded into an international firm. It has offices here in Botswana, with BPOPF being their major client.
As an investment advisor to BPOPF, Riscura must – on an ongoing basis – caution BPOPF about a potential risk even in investments already made. Sources close to the Barak Fund say the company, which operates as a trade financier, may have changed its business model and adopted a more risky one in a quest to garner more profit, albeit in a more risky approach.
The Business Weekly & Review asked Thembi Matabiswana, the Riscura Senior Consultant based in Botswana, whether they gave BPOPF investment advice regarding the Barak Fund matter. Matabiswana said for confidentiality reasons, they could not respond to The Business Weekly & Review and referred this publication to the BPOPF where Malindah insisted that all due process was followed.
Barak, started by Jean Craven and du Plessis in 2009, grew its assets and investments rapidly to manage more than $1bn in 2018 as cash-strapped businesses sought alternative sources of capital after the financial crisis. The Fund reportedly never had a down month until March 2020 when the COVID -19 pandemic hurt economies across the world.
In a statement seen by The Business Weekly & Review, Barak CEO Jean Craven has said: “We have taken firm steps to protect our investors by implementing a temporary suspension of trading in the Fund. This has given us valuable time to find a lasting solution to the liquidity constraints some of our investments are experiencing. We are focused on implementing this solution. We remain confident that the private credit asset class remains a strong indicator for growth and opportunities in the Emerging Market environment, and look forward to providing further updates on the progress of our restructuring.”
Barak’s illiquid investments reportedly comprise more than half of the Fund’s assets in sectors such as coal mining, consumer goods and fertilizer production.
In the statement, Craven said Investors willing to remain with the Fund will be transferred into new products. “Those who do not wish to continue will receive an initial cash payment representing the portion of the underlying investments that are liquid and readily capable of accurate valuation, with the rest to be paid out to investors in due course.”
According to Bloomberg and BizNews, Barak has 54 percent of its assets stuck in illiquid investments across Africa. In its statement, however, Barak said its compliance officer found no wrongdoing when allegations of impropriety were investigated. The Fund’s original auditors, PricewaterhouseCoopers, resigned before its 2019 audit was completed and new auditors are still delaying the sign-off of financial statements, according to BizNews.
Barak barred investor withdrawals from its flagship fund last April as a large chunk of its holdings reportedly became hard to value. The firm, which finances cash-starved companies across Africa, is now seeking to restructure the fund by spinning off its illiquid assets into new vehicles. Barak told clients last month that the strategy’s objectives are “no longer reasonably achievable” and it’s seeking to gradually realize the assets, in a document sent to investors according to Bloomberg.
The firm’s new auditor, Macintyre Hudson, has further delayed signing off on the Fund’s 2019 financial statements.