Why this activist investor has more faith in Africa than Australia

This, he later was told by ASIC, was procedural, because the cheque was sent to the post-office box that forwards all application forms to Brisbane, even though an original letter and cheque is required to complete the registration.

To his frustration, Staermose directed a Primary Securities representative to fly across the country on the Australia Day public holiday and deliver a replacement cheque by hand directly to an ASIC officer in Melbourne on Tuesday.

That seems to have gone to plan.

The change was processed, finally wresting authority of the Aurora Absolute Return Fund from the grasp of the management company that has defied investors and presided over a near-80 per cent decline in the value of the Australian Securities Exchange-listed fund.

Former Molopo chairman Baljit Johal at a shareholder meeting. Investors were stung when the company spent most of its $65 million cash balance.  Supplied

Costly endeavour

The expensive hand-delivery service has added to a costly endeavour for Staermose.

But so, too, has the position of the regulators not to get involved, even if there is evidence of Corporations Act breaches.

For instance, Staermose had to contact unit holders to organise the meeting to replace Aurora using an outdated share register, because neither Aurora nor the registry, Boardroom Limited, would initially provide an updated version despite months of requests.

ASIC would not step in to enforce compliance of this important and explicit requirement of the Corporations Act, he says.

The issues with Aurora have been endless.

Investors in the fund have been complaining to the regulator since August 2016, before they had lost a cent.

Several detailed letters from one concerned investor flagged issues relating to an excessive and retrospectively imposed redemption fee; the issue of new units to defeat a motion to replace Aurora as RE at an extraordinary general meeting in October 2016; and a delay in a meeting called to have them replaced as RE from the unlisted Aurora Fortitude Absolute Return Fund.

These letters urged the regulator to ensure the fund would not use investors’ money to further Aurora’s interests.

But ASIC’s response was that it would not get involved and the concerned investor should seek mediation or hire a lawyer.

While the regulator may have its strategic reasons for sitting on the sidelines, this response puts the onus entirely on one disaffected investor, piling costs on top of investors’ funds already at risk.

Worst of all, complainants are then left with no choice but to hire lawyers to fight other lawyers who are financed by their trapped funds.

An ASIC spokesman said the regulator was unable to comment.

Protracted saga

However, Aurora released an ASX statement after market on Tuesday which said that it had been advised that ASIC had changed the RE. Aurora said it would not hand over assets and records of the fund until a court validated the meeting held in which investors voted to replace it.

Staermose got involved in Aurora and began buying shares in 2017 because, provided he could garner the support of other investors, the law gave him a clear path to successfully replace Aurora and gain control of the funds.

But he is now resigned to the fact he probably will not make any money from the protracted saga. That is because, literally under the noses of ASIC, millions of dollars of funds in a particular investment walked out the door.

Aurora had, as part of an attempted takeover, bought shares in Molopo, an energy company that has since been suspended from the ASX.

The attraction of that investment was the near-$65 million of cold hard cash held by the company, after it effectively ceased operations.

However, the Takeovers Panel ruled that Aurora and Keybridge, which used to own Aurora, were working in concert on the effort to wrest control of Molopo, so the shares were confiscated and held in trust by ASIC. During this time, Molopo went ahead – without shareholder approval, thereby breaching ASX listing rules – and spent $48 million on a curious acquisition of a non-controlling stake in a United States-based joint venture with a partner incorporated in the British Virgin Islands.

That has materially reduced the value of the investment in Molopo and therefore the value of Aurora Absolute Return Fund to the point where the value in Staermose’s activist play has little chance of making money.

The loss had added insult to the injury of investors who have tried and failed to dislodge Aurora as the responsible entity of the fund. The RE is a legal entity which is meant to protect the interests of unit-holders. But in this case, Aurora is both the RE and the manager, which controls investor funds and charges management and performance fees.

So there is a clear conflict when the manager has an interest in trapping investor funds – either to charge fees on them or to use the funds to pursue its own interests – while investors either want their money back or want it to be deployed with their interests in mind.

This is why The Australian Financial Review has taken such an interest in what is now a tiny, $2 million fund. The saga shows the system simply does not work as intended.

The entailed frozen funds, misappropriated money, curiously timed expansions of the unit-counts, disputed votes, withheld share registries, and the gradual, and then rapid, loss of investor funds is testament that under-resourced investors are powerless when regulators take a passive approach.

Aurora is a small but sorry tale of dysfunction. There are others, such as the situation at the trio of pirate-themed companies, where once again investors have been forced to organise themselves against the odds, and at great expense, to regain control of their investments.

Unfortunately, however, they have only been able to exert some form of influence long after their investments have turned sour.

Falsified accounts

So what can Staermose do to make up for his Aurora misadventure? He says he is trying his luck in his birth country, Tanzania, and he’s confident he can get a better outcome than he has been able to achieve Down Under.

Staermose says he’s bought just under 1 per cent of National Investments Company Limited (Nicol) listed in Dar es Salaam.

The company has a colourful history, floating in 2008 before a rogue board made a series of questionable investments and falsified their accounts.

That led to a sharemarket suspension in 2011 after the Tanzanian regulators did what ASIC has failed to do with Aurora, and stepped in forcefully. A seven-year-long clean-up by a newly appointed board followed. In June last year, Nicol finally relisted at a price of 300 Tanzanian shillings, the same as the last traded price before its 2011 suspension.

Many among the broadly spread register of ordinary Tanzanians (the 10th-largest shareholder owns just 0.3 per cent) who had been trapped in the stock used the opportunity to sell out as quickly as possible.

But the fund had about 90 per cent of its investments in leading Tanzanian bank NMB, which had gone up in value from TZS650 to TZS2750 per share during the seven-year suspension.

That means the net tangible asset backing of the fund when it relisted was TZS1430 and at its current lower share price of TZS265 implies a 75 per cent discount. (In Australian-dollar terms, the market capitalisation of $11 million compares to an NTA of $42 million).

So there’s plenty of upside for an investor who can stomach all the risks of investing in Africa.

But after his Australian experience, Staermose says he’ll happily take his chances.

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