One of Capital Group’s most senior investment managers resigned last month after an investigation by the BBC Panorama team alleged it uncovered evidence that he secretly bought shares for his own benefit in companies that were also owned by funds he ran.
Portfolio managers are not supposed to invest personally in stocks that are held by funds that they run to prevent any conflict of interest with their duty to investors.
Mark Denning resigned from Capital Group just five days after Panorama wrote to the $1.9tn Los Angeles-based asset manager about the findings of its investigation, which will be televised tonight.
The BBC has reported that evidence discovered by the Panorama investigation suggests that Mr Denning, who worked for Capital for 36 years, allegedly broke the rules by acquiring shares in companies that were also owned by investment funds that he co-managed.
The shares were allegedly bought on Mr Denning’s instructions through Morebath Fund — Global Opportunities, which is registered in Liechtenstein.
Morebath is a village in north Devon where Mr Denning owns a large property.
Mr Denning has denied any wrongdoing.
Documents obtained by the BBC reportedly showed that the Morebath fund invested in Mesoblast, an Australian medical research company; Eros International, an Indian film company; and Hummingbird Resources, a gold miner operating in Mali and Liberia. The chief executive of Hummingbird, which is listed on Aim in London, is Dan Betts who is Mr Denning’s son-in-law.
Capital Group also bought stakes in all three companies with the investments in Mesoblast and Eros made via Capital funds that Mr Denning helped to manage. Panorama will say that Capital invested £6m in Hummingbird and this created a potential conflict of interest given the family connection between Mr Denning and Mr Betts.
The stakes in the three companies bought by the Morebath fund were ultimately held through an offshore entity called the Kinrara Trust, which was reportedly set up and controlled by Mr Denning.
Mishcon de Reya, the lawyers representing Mr Denning, denied that he owned the shares in the three companies because they said he was not a beneficiary of the Kinrara Trust.
“Our client did not declare his interest in the Kinrara Trust to his former employers because he had been irrevocably excluded as a beneficiary. He believed that he had complied with all of his relevant duties,” said Mishcon de Reya.
The lawyers also say his error was to rely on the advice of a former professional adviser and that the Morebath fund had an independent asset manager and fund administrator.
However, the Panorama team alleges it has seen evidence that Mr Denning was behind the share purchases in the three companies as well as documents showing that the Morebath fund was included in a summary of his personal assets.
Mr Denning was co-manager of four Capital investment funds with combined assets of $314bn, including the $158bn American Funds EuroPacific Growth fund, the $95bn American Funds Capital World Growth and Income fund, the $40bn American Funds New World fund and the $21bn American Funds New Economy fund.
A spokesperson for Capital Group confirmed that Mr Denning had left the company.
“We have a code of ethics and personal investing disclosure requirements that hold our associates to the highest standards of conduct. When we learned of this matter, we took immediate action,” said the spokesperson.