Macquarie fast-tracked Shield Master Fund due diligence on $30m investment pledge
Macquarie rushed Shield Master Fund onto its platform after advisers promised $30m in investments, before the fund's collapse left 5800 investors facing losses of $500m.
Macquarie fast-tracked doomed Shield Master Fund’s addition to its investment platform after financial advisers promised to get tens of millions of dollars into the scheme in the first year.
Financial advice firm MWL Financial Services wrote to Macquarie, Equity Trustees and Praemium pledging to lob at least $30m into Shield in the first year if the fund was put on their investment menus, The Australian can reveal.
“On the back of strong adviser interest, and since approval by our Investment Committee (APL), we guarantee a client pipeline in excess of $30m across the three asset classes. Our forecasts are significantly greater than that,” the MWL letter said.
Shield, a property-focused retail fund under investigation for allegedly mishandling superannuation money, collapsed last year leaving 5800 investors at risk of losing close to $500m in retirement savings.
The fund was offered on Macquarie and Equity Trustees platforms from early 2022 until the corporate regulator halted investments two years later. Over the two years, Shield grew from nothing to $480m in investor funds, all driven into the fund by a small handful of advisers.
But for the first year and a half, all of the Shield money — hundreds of millions of dollars — went onto Macquarie’s platform. Advisers only started sending investor money to Equity Trustee-hosted platforms once Macquarie halted investments into Shield in mid-2023. There is no indication Macquarie took any action or noticed the volume of client money flooding in before this time.
Equity Trustees stopped accepting investor money into the fund six months later, in December 2023.
Macquarie Investment Management, the super trustee for the Macquarie Wrap platform, and Equity Trustees, which hosted the NQ Super and Super Simplifier platforms, are among a number of firms under investigation over the fund scandal.
As part of its due diligence process, Macquarie told Shield’s investment manager, CF Capital, it could only get the fund onto its platform if it certain requirements.
“We expect to see support of around $10mill in the first 12 months by a number of different Dealer Groups/advisers using the Macquarie Wrap platform,” Macquarie wrote to CF Capital on Christmas Eve 2021.
“Additional requirements for super (include): Investment Manager has at a minimum $100mill under management; independent investment grade research; fund has a three-year track record.”
If the fund did not have a three-year track record, Macquarie said it would accept either “three-year monthly backtested performance data or performance data for a comparable strategy (net of fees)”.
CF Capital’s Ilya Frolov, who was also a director of Shield’s responsible entity Keystone Asset Management, provided fund documents to Macquarie on a Friday afternoon in January 2022. By the Monday morning, Macquarie was champing at the bit.
“Our team will review as a priority given the opportunity size with MWL,” Macquarie said in an email seen by The Australian.
Shield was up and running on Macquarie’s platform within weeks. This was despite CF Capital not meeting the requirement to have $100m under management. At the time, CF Capital had no money under management, a source told The Australian.
It is understood Macquarie believed CF Capital to have $116m under management but did not seek to verify this before putting Shield onto its platform.
Shield, as a new fund, also had no track record. Instead, it used the track record of Melbourne-based Watershed Funds Management, which was lined up to run the listed equities component of the Shield Master Fund.
Watershed, an investment manager with a 10-year track record, was told it would get 80 per cent of Shield investor money to put to work in listed equities and fixed income products.
Watershed now believes it got nowhere near 80 per cent of the money flowing into Shield, putting the figure closer to 20-30 per cent of total investor funds.
Soon after the money flowed into Watershed, it started to flow back out as Shield channelled more and more of the investor funds into property development.
Visibility on Watershed’s side was poor as the money was coming through an intermediary, Pearl Investments, which white-labelled Watershed’s investment portfolios. Watershed has terminated its relationship with Pearl.
In the wake of the Shield disaster, Macquarie has quietly shored up its due diligence of prospective funds as it waits to see if the corporate cop will take action following an investigation of the super trustee’s role in the fund collapse.
Macquarie no longer accepts funds that only have ratings from SQM Research and is also now shunning new funds with related responsible entities, The Australian understands.
In the case of Shield and another collapsed fund, the First Guardian Master Fund, the directors of the responsible entities were also the same people running the funds.
Macquarie’s due diligence overhaul adds to the pressure on under-fire ratings house SQM Research, which has also been caught up in the scandal. SQM gave Shield a “favourable” 3.75 rating in 2022 despite it being a new fund with an untested team.
Like Macquarie and others, SQM is also under investigation by the corporate regulator for its role in the Shield and First Guardian failures.
