Cytonn in race against time to pay frightened investors
In 2014, Edwin Dande was the chief executive officer an asset management firm working with a team of other asset managers and everything was good, at least according to him.
However, disagreements between the parent company and the asset management arm over a lucrative real estate deal led to the exit of Dande and four others on his team from the subsidiary in a chaotic break-up that birthed Cytonn Investments.
Later in 2017, Dande would be featured in Forbes for growing Cytonn into an Sh80 billion asset management fund and later on ranked the fastest growing fund according to the regulator Capital Markets Authority (CMA).
This desire to dominate in a short span of time saw Cytonn launch multiple projects including Cytonn College of Innovation and management while pushing the regulator whom Dande described as Kanu era-like to lift some risk exposure limits.
When the regulator refused to lift the 10 per cent limit on investments in unregulated projects and 25 per cent in a single fund, Cytonn sued and when the court issued stay orders against CMA, the regulator opened a raft of accusations.
CMA is accusing Cytonn of promising investors unrealistic returns, lacking the talent to manage investor funds and exposing investors to risk that has not been approved by the regulator.
The exchange between the firm and the regulator started soon after Co-operative Bank, who was the trustee of Cytonn’s Sh700 million unit trust fund, resigned.
In August 2019, Co-operative Bank issued a two month notice of resignation.
The fund manager was thus given two months to appoint a new trustee for the scheme, they are yet to replace Co-op Bank even though Dande says National Bank is willing to step in.
Last Saturday, Dande was seated in a boardroom with two assistants facing a slew of questions from over 450 investors over the internet, many of whom wanted out.
Thirteen of them including Kenneth Maweu Kasinga from Nakuru had gone to court and sued both Cytonn and CMA claiming Cytonn has defaulted on his Sh3 million investment that was to mature on September 7.
“The 1st defendant’s statement that it gives no assurance that it will pay the amount invested upon maturity is worrying and I stand to suffer irreparable loss if the orders sought are not granted,” said Kasinga.
The court documents also indicate that the investor was promised an attractive 19 per cent return on investment which CMA said is unrealistic in this market.
Dande said Cytonn was forced to liquidate its positions in money market investments and real estate projects last week to pay off investors after CMA sounded an alarm of Cytonn defaulting on more than Sh122 million in mature investments.
“We have put assets on sale to get that cash, we have sold off real estate projects including Westlands 22 and liquidated positions in money market funds to pay off investors who demanded their money back, especially Friday.”
“We have also paused projects that require long-term funding to improve liquidity, we are doing everything we can to be able to refund your money,” Dande told investors in the virtual meeting.
Former Chief Operating Officer Shiv Arora who was part of the four that left Britam has recently exited the company, leaving behind Dande, Patricia Wanjama and Elizabeth Nkuku.
A letter by 13 investors to the regulator demanding for a refund of matured investments has frightened several of Cytonns 4,000 investors who forced the manager to sell off assets.
The Covid-19 pandemic has exposed the underbellies of companies and fund managers whose liquidity ratios were from optimal fund managers and raising liquidity concerns.
When Celestine Olilo asked to know why her money was rolled over without her consent and yet she needed the money due to the pandemic she was told: “This is a pooled investment, paying everyone would result in more losses.”
“We had already agreed in the contract that when such an event happens then this is how we shall go about it,” Dande said.
The investors were also asking about the delay in interest payments. Dande, however, said the interest payments will be capitalised and paid after 12 months. He said that investors should not go to CMA, saying the regulator will not help them.
“People who invested in Uchumi or Mumias were never helped by the regulator, it is the integrity of the fund manager, the investment strategy and the assets invested in that matter.”
CMA wants Cytonn to cut investments in two of its real estate properties, the Alma in Rwaka and Applewood in Karen, in which Cytonn invested 64 per cent of the funds, citing breach of guidelines.