An investment management company backed by Melbourne's Liberman family has quit its management of a publicly listed company after losing millions of dollars through poor investments.
In presentations, Merricks Capital warned clients about investing in "anything you don't understand", although since it took management control of the sharemarket-listed Merrick Special Opportunity Fund, which was formerly known as Fat Prophets Australia Fund, it has invested a large part of its funds in a copper and gold miner, which has nearly destroyed the company.
When Merricks Capital gained the right to manage the listed fund in March 2010, the shares had a net asset backing of $1.15.
Subsequently, it liquidated the fund's share portfolio, putting the funds into risky investments, with the asset backing now estimated at just 60¢, but with investor caution about that figure since the shares last traded at 40¢.
Not only has the share price collapsed since management changed but investors have also missed out on the sharemarket's subsequent gains.
Select Asset Management has 8.2 per cent of the shares and fund manager Geoff Wilson has sold down his recent holding of 5.25 per cent of the capital. It is unclear what the level of his holding is, although late on Thursday his investment funds requisitioned a shareholder meeting to force out Merricks representatives or their appointees from the board.
Directors came under fire at the annual meeting last year over the poor investment performance, although shareholders were told they could not easily dump the funds manager, with the only possibility being once the fund had underperformed the S&P/ASX 300 Accumulation Index by 15 per cent over three years.
Ahead of this clause being triggered over the next few weeks, Merricks has quit as the fund manager and also sold its 13 per cent stake in the company.
"This was voluntary," Merricks Capital's chief investment officer, Adrian Redlich, said of the decision to surrender management of the fund. "We've suffered the biggest loss."
He refused to indicate at what price Merricks sold its stake, citing a confidentiality agreement with the purchaser, Andrew Barnes, who has emerged with 20 per cent of the shares.
Despite any losses, Merricks pocketed sizeable management fees annually, receiving $350,000 in the latest financial year alone.
Apart from some cash holdings, nearly all the publicly listed fund's capital is tied up in miner Straits Resources and in Lantern Hotel Group, the former IEF Real Estate Entertainment.
"The ethos of Merricks Capital is to provide absolute returns by making investments only in areas where Merricks Capital has an informational edge which is driven by fundamental research and analysis," the Merricks website says.
"All of Merricks Capital's investment ideas are generated by detailed bottom-up fundamental research by analysts who have specialised industry and sector knowledge and experience."