The investment firm Ruvercap is at the center of a huge investment scandal: banks, pension funds, family offices and asset managers are investing in private debt vehicles. Up to 500 million francs were lost.
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The list of cheated investors is long and by no means complete: the most prominent are Geneva private bank Edmond de Rothschild, Freiburger and Graubündner Kantonalbank, asset management group Aquila, the Geneva financial institutions Notz Stucki and de Pury Pictet Turrettini, the pension funds of the city of Zug and of the Canton of Thurgau and other asset managers in Romandy, banks and investment companies in Germany.
According to research by finews.ch, they all invested in Irish-registered funds (in Swiss francs, euros and dollars) set up by Zurich-based company Ruvercap Investment. The funds held debt securities from the Swiss and international private market for a total of around CHF 700 million.
Up to 500 million francs gone?
Investors don’t know what’s left of it. Inquiries from finews.ch went unanswered.
Following an intervention by the Irish financial regulator in July 2019, Ruvercap has now been replaced as investment advisor by Austria’s Quantic Financial Solutions and the funds are being wound up. What and if the investors will ever get back from their initial investment is still unclear. A person familiar with the situation told finews.com : “350 million francs are probably gone, but it’s probably more like 500 million.”
Investors threw the money behind
What happened? Ruvercap’s business idea was actually perfect timing: Business partners Marc Clapasson and Jon Turnes started Ruvercap in 2016, and the private debt funds aroused huge interest in the negative interest rate environment.
When Ruvercap managed to get the bond giant Pimco on board (Pimco took over claims of around 500 million francs collected from Ruvercap and placed them in a special purpose vehicle), the levees broke. “The investors just threw the money at Ruvercap,” says a person familiar with the processes.
The result: Ruvercap also gave more and more loans and liquidity to companies and too often “closed both eyes” on risk management, as the person put it. The processes customary in investment companies were not intact.
A lack of transparency led to the funds being frozen
The first sign for investors that something was wrong was in March 2019: The company Zentrum Factoring (formerly Go.Factoring.Switzerland), which works with Ruvercap, got into a financial squeeze because creditors had not made repayments.
Irish fund manager Quayside, who works for Ruvercap, was no longer able to determine the fund’s exact net asset value (NAV) and reported it to the regulator. The situation had become so opaque that the funds finally had to be frozen.
Center factoring, the company is now bankrupt, was one of the numerous so-called “sourcing engines” with which Ruvercap worked together or even managed them as subsidiaries. These companies collected the loans or pre-financing to the SMEs, which Ruvercap then bundled, securitized and poured into loan instruments, so-called compartments. The intrinsic value of these instruments seemed to be becoming more and more doubtful.
Financing in Serbia
In November 2019, the auditing company KPMG was supposed to examine the Ruvercap network and raised doubts about the various “sourcing engines” and the companies they financed.
It is unclear whether there is the promised cash flow or the collateral, the auditing company said. According to the KPMG report, one of these sourcers was Lavaux Capital in Romandy, which had financed a fertilizer manufacturer in South Africa. This in turn delivered to a customer in Zimbabwe. Because the foreign exchange ran out there, the customer stopped making payments, which in turn affected the credit instruments.
Another sourcing firm that KPMG mentions by name is Batagon. This bought a battery company in Serbia in December for 7.35 million euros. However, the corresponding loan instrument was valued at EUR 63.7 million in September 2019. KPMG writes that it is unclear whether all funds from the loan were used to buy the battery company.
“Potential loss in the double-digit percentage range”
According to KPMG, Ruvercap was not exactly helpful in the examination: requested documents and information were not provided. When asked, Ruvercap did not respond for more than two weeks. KPMG also stated that it could not be determined which loans could be repaid at all and whether the investor funds had actually been used properly.
When asked by finews.ch , Ruvercap Investment wrote that the rumored losses of up to CHF 500 million contradicted the facts. An analysis by the investment manager indicates a potential loss in the low double-digit percentage range.
Have the owners become too greedy?
People familiar with the events told finews.com that Ruvercap’s business operations were largely opaque. The interest of investors was so great that a lot of money initially simply lay idle. Finding good companies for financing is increasingly difficult on the one hand, but the Turnes & Clapasson have also become greedy, so one accusation.
Some say the Ruvercap managers also received kickbacks. They would have received six-figure fees for directorships in companies they financed. Ruvercap wrote: ‘These are crude, unfounded allegations. You are not correct. The fee model was customary in the market and always transparent for all investors».
It is correct that the management partially sat on the boards of directors of the companies. This was regularly requested by investors as a security measure.
Pimco is up and away
While the funds are now being wound up, Ruvercap clients want to try to get their money back elsewhere and have filed civil lawsuits in Switzerland, Germany, Luxembourg and Ireland, according to finews.ch .
Ruvercap Investment will cease operations once the funds have been wound up. Ruvercap AG was founded last December. Marc Clapasson and Jon Turnes only act there as so-called advisors, but are also majority shareholders here. In principle, the business model is the same as that of the previous company. Pimco has since severed its business relationship with Ruvercap.