Chris Ruffle and Ke Shifeng are facing a bumpy road to full rehabilitation in the eyes of big league institutional clients, six years after Mr. Ruffle – the then famed lead manager at Martin Currie China – was removed from management duties for having committed securities fraud during the global financial crisis.
In the latest wrinkle to the former star duo’s recovery story, the City of London Investment Management, a long-time investor in The China Fund Inc (CHN), is urging other investors to vote “no” to their return as manager of the US$306 million US-listed China portfolio. The duo had managed the fund – in which the City of London Investment Management holds a 30% stake – from 1992 to 2012.
The fund’s board had suggested reappointing Mr. Ruffle and Mr. Ke via their new company, Open Door Investment Management.
The appointment would mean the termination of the fund’s existing manager RCM, a subsidiary of Allianz Global Investors (AGI).
AGI’s Hong Kong spokeswoman declined to comment on the potential change.
“The principals of Open Door are the same two individuals who were the most senior members of the investment team whose actions were at the core of the SEC Administrative Proceeding during their previous tenure as the Investment Manager,” Jeremy Bannister, director of corporate governance at City of London Investment Management, writes in an open letter to CHN Chairman, Joe Rogers.
“Stockholders could push the Fund closer to liquidation,” Mr. Bannister adds, suggesting his company would rather see the fund liquidated than have Mr. Ruffle and Mr. Ke back.
When asked his thoughts about the strong objections, Mr. Ruffle tells Asia Asset Management (AAM): “I am not in a position to comment on behalf of the CHN board, but found good support in my recent marketing trip in the US.”
“For Open Door, we have been doing well in the (China) A-share market this year,” he adds.
Some other market observers also say they are confounded by the choice of Open Door.
“The question for me is quite simple: why would the [The China Fund] board want to appoint the very same people that were formally found to have breached their fiduciary duties in the past and on the very same product? Why not just appoint another manager?” Peter Alexander, managing director of Shanghai fund consultancy Z-Ben Advisor tells AAM.
“Someone really needs to explain to me why The China Fund board would even consider – let alone formally recommend – Open Door Investment in the first place. It’s a $300 million fund after all. There had to be another option,” Mr. Alexander says.
“I’d say they still have a great deal of respect in the industry as investment professionals that understand PRC and can get money to work. But equally I can see that a non-specialist board member would find it hard to get comfortable with their history. I certainly wouldn’t say they were toxic,” Peter Douglas, a veteran fund allocator who founded the consulting firm GFIA in Singapore and is now a director at the CAIA Foundation in the US, tells AAM.
Mr. Ruffle did not receive a prison sentence for his part in, according to a 2014 order issued by the US Securities & Exchange Commission (SEC), “willingfully aided and abetted and caused violations” of the US Investment Company Act – when his former employer agreed to pay out a then record $14 million fine to the UK’s Financial Services Authority and the SEC.
But he had to personally pay $150,000 to the US Treasury, and serve a 12-month industry ban ordered by the SEC, which he completed a year ago.
Since founding Open Door Investment Management in 2012 with Mr. Ke, his business partner and now chief investment officer, the duo have had some success scoring domestic Chinese mandates, such as one with local wealth management platform Noah, which services high-net-worth Chinese investors.
But some global clients, such as City of London Investment Management in the current instance, are making it known they will neither forgive nor forget.
These days, amongst the Tatler-worthy community in other parts of China, Mr. Ruffle may be better known as a winemaker. He owns a Scottish castle and vineyard called Treaty Port in Shandong, where he grows the grapes and has been bottling wine for the past decade.
“As for the vineyard, I am pleased to say that we won another gold medal for our 2015 Rose, and the 2016 harvest was the best yet,” Mr. Ruffle says.
