Franklin Templeton Investment Trust Management is facing penalties that may include business suspension after it incurred losses for investors by failing to disclose in a timely fashion that some of its portfolio companies were insolvent.
If such disciplinary action is taken, Franklin Templeton Investments' Seoul business may be forced to scrap its plans to merge with Samsung Active Asset Management. The two had been in talks since March 2018 with the aim of jointly managing a new firm called Samsung Franklin Templeton, but a regulatory probe has suspended the move.
Courtesy of Franklin Templeton Investments
Samsung Asset Management’s merger with Franklin Templeton delayed
“We have notified (Franklin Templeton’s Seoul office) that it is likely to be subject to heavy penalties, including suspension of business,” an official at FSS’ department in charge of asset management investigations, told The Investor on Feb. 15. “The FSS is planning to hold a committee meeting no later than Feb. 28 to decide on the scope of the penalties, and Franklin Templeton can defend itself at that meeting.”
After the meeting, the case will be referred to the oversight body the Securities and Futures Commission.
Franklin Templeton’s investment trust arm had been under investigation by the FSS since June 2018 over the belated disclosure of information about its fund portfolio. Through the fund, worth 17.3 billion won (US$15.3 million) as of end-2018, Franklin Templeton had bought interest rate-pegged notes for bank loans extended to low-credit US companies.
After investing in those high-risk, high-return bond instruments, the asset management house failed to immediately inform investors that companies in its portfolio -- US coated-paper manufacturer Appvion and US firearm manufacturer Remington Outdoor -- had gone into liquidation and their debt had been swapped for stocks. The disclosure was delayed by up to a month.
This ended up causing significant losses for the investment trust, which had been operating since 2014. As of end-January, the collective investment had recorded an on-year loss of 9 percent, according to Franklin Templeton. This stands in contrast to the fund’s benchmark Credit Suisse Leveraged Loan Index, which gained 2.3 percent during the same period.
Franklin Templeton’s assets under management totaled 2.13 trillion won as of Feb. 13, according to data compiled by the Korea Financial Investment Association. Samsung Active Asset Management, an indirect subsidiary of the Samsung conglomerate, was managing assets worth 4.46 trillion won.
The two firms’ combined AUM dropped 42 percent compared with March, when they announced plans for a merger, according to KOFIA.
A Samsung Asset Management spokesperson said the company was awaiting the results of the investigation. Representatives of Franklin Templeton’s Seoul office were not immediately available for comment.
By Son Ji-hyoung (email@example.com)