Fund giant Invesco has called in lawyers after its head of UK equities Mark Barnett was accused of bailing out one of his investments.
The US hedge fund Muddy Waters yesterday (August 8) published a 25 page report on Burford Capital alleging the UK-listed litigation finance firm had "egregiously" misrepresented its returns in recent years.
Invesco is the largest shareholder in the business, with the stakes held through Mr Barnett’s UK Income and High Income funds.
The report alleges Mr Barnett "bailed out" Burford Capital after one of the firm's investments went wrong.
In response, Invesco issued a statement rejecting any allegations of improper conduct.
The statement said: “Invesco notes the research paper published by Muddy Waters - we categorically refute any accusation of improper or unethical behaviour on behalf of Invesco or fund manager Mark Barnett.
"Invesco has been a long term shareholder of Burford Capital and held investments in Napo since 2006. These investments were made and overseen in line with our robust investment and independent oversight processes. Invesco’s legal advisers are reviewing the accusations and we expect we will be able to make a broader statement in due course.”
Burford Capital, which is also a major investment for Neil Woodford, saw its share price fall from £13 to £6 over the past two days, following the publication of the report.
The report alleges cash invested by Mr Barnett in a company called Napo was used to repay Burford.
Burford Capital makes money by investing in civil litigation cases in the US. One of the cases it funded involved Napo, a pharmaceuticals company, which went on to lose its case.
But Napo separately owed Burford Capital money and it then merged with another company and issued new shares, with Burford receiving cash and shares to settle the debt.
Muddy Waters alleged Mr Barnett’s UK funds were behind the transaction and helped fund it.
Burford then included this outcome as a profit in its annual statements, despite it having funded a legal case that was lost.
Burford Capital has also denied the claims, saying: "Burford uses the same IFRS accounting that is used widely across the financial services industry and has used consistent accounting policies for many years."
Invesco is the largest shareholder in Burford Capital, with a 13 per cent holding, while Mr Woodford is the second largest holder.
The 30.3m shares are presently worth about £190m, from about £393m prior to the publication of the short sellers report.
The Invesco Perpetual UK Income fund has lost 12 per cent over the past year to August 8, compared with a loss of 4 per cent for the average fund in the IA UK All Companies sector in the same time period.
david.thorpe@ft.com
