The anatomy of a scandal: Robin Farrell, Arch

Arch Financial Products has taken a battering over the last two years, with everyone from the regulator to its funds’ authorised corporate director taking a shot at them. When FTAdviser met up with Robin Farrell, chief executive of Arch, the wounds were still bare.

Arch Cru is probably one of the most notorious fund brand names of recent decades, for all the wrong reasons. At its peak the brand was represented across six Oeics as well as a range of Guernsey-based investment funds, with funds under management totalling more than $1.5bn.

It will forever be remembered, however, as one of the worst ever fund collapses, with around 10,000 clients losing most of approximately £422m of investments, which were largely advised by IFAs.

In the period October 2008 to March 2009, Arch Cru funds had $200m of liquidity in cash. By March 2009 the funds were suspended and things started “shrinking rapidly”.

“In 2009, we were thinking that we are well positioned and we have lots of cash here, so what could go wrong?”, Mr Farrell opines.

March 2009

Unlike some funds, Arch Cru managed to still be profitable during the credit crunch in 2007, but then the global financial crisis hit and the largest move in sterling and dollar in 37 years took place. Mr Farrell says that all of the banks “suddenly wanted margin payments”.

As the funds were in sterling but the assets were in dollars the fund was hit by “a double whammy”, but Mr Farrell asserts that the firm still “had sufficient cash across all the funds”.

Events were already beginning to conspire against the firm. An earlier Arrow visit by the Financial Services Authority to the funds’ authorised corporate director, Capita, seemed to have sparked concerns about the Arch Cru funds.

Mr Farrell says that Capita “certainly did not give us any idea” that there were any problems, adding that the firm had simply said the FSA had “asked to look at our funds and a number of others that invest in investment trusts”.

Mr Farrell’s version of events differs from that of Capita.

He says that in March 2009 Capita approached Arch Cru and requested the funds stop buying and selling Guernsey-shares, a move that came as a surprise to the fund manager.

“We could have fought it legally or we could temporarily agree while we sort it out. We agreed to stop but we didn’t know what Capita’s legal basis for this was. This really affected the liquidity of the funds.”

According to Mr Farrell, the end result of this was that the fund manager was unable to act and had to watch as the funds were suspended days later.

Capita’s narrative and view of the problem’s root causes is starkly contrasting. It says it is “not correct” that Arch only became of aware of the liquidity problem in March 2009 and that it had been “in dialogue” with the fund manager “for some time before then”.