CMA raises alarm over safety of Cytonn fund

Cytonn Investments Managing PartnerEdwin Dande makes his remarks when Cytonn Investments Management Plc (‘Cytonn Investments’) released their Q3’2017 unaudited results, posting impressive growth. [File, Standard]

The Capital Markets Authority (CMA) has raised alarm over the failure by Cytonn Investments to honour matured investors’ claims amounting to more than Sh122.8 million.

These funds are held in investment schemes that the authority does not regulate, and have been listed in a protracted legal battle between CMA and the Cytonn High Yield Fund (CHYF).

CMA had requested that the CHYF reduce its investments into Cytonn-related projects to 10 per cent of the fund’s total assets under management (AUMs) as per regulations to minimise risks and protect investors.

However, Cytonn moved to court seeking to fight the 10 per cent limit in a case that still ongoing.

The firm’s Chief Executive Edwin Dande told the court that the directive was economic sabotage.

On Tuesday, the High Court suspended CMA’s attempt to limit CHYF from not investing more than 10 per cent of funds in its portfolio and freezing any investment of the funds held in SBM Bank, pending the determination of the case.

CHYF is authorised by CMA to largely invest 80 per cent of AUMs – which consist of publicly pooled funds – in real estate assets. 

In court documents responding to Cytonn, CMA said it was receiving complaints from investors on the Cytonn High Yield Solutions and Cytonn Project Notes, which CMA does not regulate, terming them high risk.

CMA Acting Director, Marketing Operations, Abubakar Hassan Abubakar wrote to Mr Dande on Monday asking for a quick resolution to outstanding complaints.

“The authority has noted with concern ... complaints from members of the investing public. The complainants have alleged to have invested in the Cytonn High Yield Solutions and Cytonn Project Notes, investments managed by Cytonn Investments Management Ltd,” noted CMA in a letter to Cytonn.

“The authority further notes the high risks posed by the aforementioned products to the investing public and inability by Cytonn Investments Management to meet its obligations as and when they fell due.”

The CHYF is a collective investment scheme (CIS) regulated by CMA but the sponsor is Cytonn Investment Management, which is not regulated by the authority. The regulator warned that failure of compliance might lead to the loss of investor money.