As published on afr.com, Tuesday November 26, 2019.
The corporate regulator is examining one of Australia's top hedge funds, Regal Funds Management, and its trading "in certain securities" after obtaining documents from its Sydney office.
Regal told clients on Tuesday that it learnt that morning that the Australian Securities and Investments Commission was investigating the group, and described it as "a preliminary investigation".
Australian Federal Police also executed a search warrant on ASIC's behalf and collected documents, according to sources, on Tuesday morning. By the afternoon, Regal was back trading, and the firm is confident it can satisfy queries.
Regal, which oversees around $2 billion, was co-founded by chief investment officer Phil King. It is one of the highest-profile hedge funds in Australia and Mr King is a prominent industry figure who was this year inducted into the fund managers' hall of fame. It is understood that Mr King is not being personally investigated.
"This morning Regal has learnt that ASIC is conducting a preliminary investigation by way of a search warrant, in relation to its trading in certain securities," a Regal spokesman said.
"As an active participant in Australian equity markets, Regal is subject to scrutiny from regulatory bodies from time to time. Regal’s responsibility to its clients is paramount and it takes its obligations to comply with all laws and regulations very seriously.
Regal is co-operating fully with the investigation."
Shares of Regal's listed investment trust – the $310 million Regal Investment Fund, known as RF1 – were paused from trading at 10.08am AEDT on Tuesday at the request of the company. No explanation was provided in the subsequent trading halt at 11.21am AEDT.
But RF1's responsible entity, Equity Trustees, followed up with a statement at 1.09pm AEDT saying it had been informed by the investment manager that "it is under investigation by the Australian Securities and Investments Commission for an undisclosed issue''.
It is not the first time Regal has dealt with ASIC. In 2015, Regal and Mr King provided enforceable undertakings to the regulator in relation to the short selling of Ten shares in 2013, after former Bell Potter broker Angus Aitken emailed Mr King about an unnamed client's selling intentions.
Regal realised an $80,000 profit from the transaction and ASIC accepted enforceable undertakings in lieu of administrative action from the parties, which did not constitute an admission by Mr King, Mr Aitken, Regal or Bell Potter.
The investigation won't impact Regal’s ability to manage money for its clients, Regal's statement on Tuesday concluded.
Mr King was the first stockpicker to present at the Sohn Hearts and Minds investment conference on Friday, where he pitched Nickel Mines as his long idea and Polynovo as a short.
Regal was ranked second among 134 managers in the 2018-19 Mercer survey of Australian fund performance, after the Regal Australian long-short equity fund returned 16.9 per cent before fees.
It was also a finalist in the best long-short category at this year's Hedge Funds Rock & The Australian Hedge Fund Awards, a winner in the best market neutral category, and named best alternative investment manager of 2019.
Regal is also known as a big fee-payer to the street, given its size and agility to participate in new offerings. The scope of its research and estimated 24-person investment team spans 500 companies in Australia and more than 5000 in Asia.
It was founded in 2004 and manages money for private banks, financial planning groups, asset consultants, offshore pension funds, family offices and high-net-worth individuals, according to RF1's offer documentation.