Clime boss John Abernethy says ASIC should now investigate trades in ANZ shares

A fund manager who spotted the massive shortfall in a $2.5bn share placement by ANZ wants ASIC to investigate which hedge funds knew about it and used the information to trade.

The corporate regulator’s victory against ANZ, after a court found the bank failed to inform the market about a massive shortfall in a $2.5bn market placement, should be the starting point for a further investigation into secret information exchanges across the hedge fund sector.

That is the view of Clime Investment Management chairman John Abernethy, who says that, without ASIC taking further action, hedge fund operators will continue to trade on information not broadly known to the market.

Mr Abernethy, who was interviewed by the corporate regulator as it prepared its case against ANZ, has said hedge fund operators were benefiting from connections with investment banks at the expense of retail and long-only institutional investors.

The Clime Investment Management boss has been a key watcher of the ANZ case for years, since writing a note to clients in September 2015 saying that the bank had faced a shortfall on the $2.5bn placement in August that year.

The Australian Securities and Investments Commission pursued ANZ in the courts after beginning its case in 2017, in a bid to prove that the bank failed to inform the market.

This came in the wake of a market announcement from ANZ touting the success of the $2.5bn placement, when it actually faced a $790m shortfall that had gone to underwriters.

The corporate regulator had contended that the $2.5bn bookbuild had not been fully covered, because real demand from certain investors had come in well below earlier bids.

This resulted in the underwriters scaling back their allocations to hedge funds amid fear they might create a “disorderly or ­volatile aftermarket for ANZ shares”.

Citi, JPMorgan and Deutsche Bank picked up the $790m worth of shares in ANZ at $30.95 each as a result.

ANZ claimed its $2.5bn placement was successful despite a $790m shortfall. Picture: Kelly Barnes

ANZ shares have sagged in the years since the issuance, only hitting the levels around the $2.5bn issuance in 2017.

In a recent judgment, the Federal Court found ANZ had failed to inform the market by not disclosing that underwriters had been forced to step in to prop up the placement.

Judge Mark Moshinsky found senior representatives of the underwriters as well as ANZ’s head of capital and structured funding, John Needham, “believed that the market did not know about the shortfall”.

Mr Abernethy said while ANZ had not disclosed the shortfall, hedge fund operators clearly realised that the placement had not gone well.

Trades in ANZ shares in the days following the placement were filled almost immediately, with the investment banks keen to offload their stakes.

Mr Abernethy said although Clime did not bid for ANZ shares, it was obvious to him that traders had knowledge of the overhang in shares held by Citi, JPMorgan, and Deutsche.

Mr Abernethy said this created a “false market” that led traders to believe the $2.5bn placement had been covered and they could put their bids in.

“The behaviour of hedge funds and the protection racket that goes on, ASIC doesn’t want to get involved, that is the seediest side of the market,” he said.

Despite this, ASIC’s subsequent litigation, as well as the Australian Competition & Consumer Commission’s ill-fated cartel case seeking to take aim at the investment banks and ANZ over their moves to manage the sales of shares, Mr Abernethy said no regulator had sought to reveal what hedge fund operators knew.

“How was this information withheld from the market? (The regulators) had the opportunity to subpoena bankers, dealers, hedge funds, you could have seen if there was a concerted ­effort to restrict information from the market,” he said.

“The critical information was withheld from the market.”

However, The Australian understands ASIC gave some consideration to looking at the issue but did not see clear enough signs of market manipulation.

Mr Abernethy said if the regulators had chased down the traders it would have revealed “some pretty unsavoury practices”. He said: “It goes on across markets and securities, there’s a favourable relationship between hedge funds and brokers.

“ASIC does not want to get involved, they don’t understand how manipulated the market is and relationships that exist in the dark markets.”

Originally published as Clime boss John Abernethy says ASIC should now investigate trades in ANZ shares