On Monday, India’s market regulator barred the Franklin Templeton Fund from launching any new debt schemes for two years after an investigation into its sudden closure of six loan funds last year revealed “serious lapses and irregularities.”
The Securities and Exchange Board of India (SEBI) decision is a major setback for Franklin Templeton, one of India’s most prominent fixed income funds, with more than Rs 825 billion ($ 11.33 billion) under management at the end of 2000. March.
SEBI ordered the fund to reimburse investment and advisory fees together with interest of over Rs 5 billion and fined the global giant an additional Rs 50 million.
Franklin Templeton said he strongly disagrees with the SEBI order and plans to appeal it. The decision to liquidate these schemes “was made with the sole purpose of preserving value for the unit holders,” a company spokesman told Reuters in an email.
In April 2020, the firm unexpectedly closed six loan funds in India with nearly $ 4 billion in assets under management and large, higher-yield, lower-rated credit securities, citing a lack of liquidity amid the coronavirus pandemic.
This triggered panic withdrawals from other Franklin Templeton schemes, as well as from other asset managers’ loan funds, sparked a social media storm and led to lawsuits by distraught investors.
SEBI said in a statement Monday that the fund has high exposure to illiquid securities under several schemes, failed to conduct proper due diligence and failed to provide critical investment metrics analysis for individual issuers.
The regulator also said that the fund has not taken any specific steps to manage concentration risks, downgrades and liquidity problems for securities in its portfolio.
The violations appear to be a consequence of Franklin Templeton’s “obsession” with using “high return strategies without due regard for the associated risk parameters,” SEBI said.
Franklin Templeton has long been known for his focus on lower-rated securities such as ‘AA’ or ‘A’ and, in turn, higher yields for his investors.
But a string of defaults since late 2018 have drained liquidity in the corporate bond market. As payouts surged due to the coronavirus pandemic, Templeton, faced with lack of demand for its lower-rated bonds in the bond market, closed its funds.
(1 US dollar = 72.8130 Indian rupees)
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