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The issues facing the funds managed by Aurora Funds Management are far more serious. It is all about the illiquidity of a speculative investment in convertible notes in a troubled energy company, Antares Energy.
The circumstances surrounding that investment and the snail's pace with which the fund manager addressed the valuation of the convertible notes is worthy of further inquiries by the Australian Securities and Investments Commission.
Hedge funds operate within strict rules but in this case it would seem ASIC has been slow to enforce those rules.
The Aurora Absolute Return Fund wholly invests in the Aurora Fortitude Absolute Return Fund, which is a master fund that holds Antares Energy Convertible Notes.
Peculiar note trading suspension
What is peculiar about this investment is that the notes have been suspended from trading for more than three months.
Why is a freeze on redemptions and applications being imposed now? Why is the fund manager suddenly saying the notes are illiquid?
A letter to unitholders posted on the ASX on Tuesday said the Antares notes were due to be repaid on March 31, but "information has become available to us, which leads us to believe there is a possibility that repayment will not occur on this date, and therefore we are unable to accurately determine a value for the Antares notes".
"This uncertainty means we do not believe it is the best interest of unit holders to continue to accept applications and redemptions, and to allow on market trades whilst there is doubt about the liquidity of a position within the master fund's portfolio."
Aurora's investment in the notes comprises about 8 per cent of the net asset value of the master fund.
This sudden suspension of redemptions and applications in the Aurora managed funds more than three months about the Antares notes were suspended raises questions about the trading in units in the funds in recent months.
That raises the follow question: were asset values in the funds overinflated because there was no impairment of the Antares notes?
If that is the case, those who sold units received too much and those who bought them paid too much.
It has been a tough six months for the Keybridge group of companies.
Former managing director, Nicholas Bolton was disqualified from managing corporations for three years following his involvement in the failure of 13 companies.
The disqualification commenced on November 17, 2015, and ceases on November 16, 2018.
The disqualification followed an ASIC investigation into Australian Style Investments Pty Ltd, which found that Mr Bolton breached his duties as a director and that he failed to hold adequate records to explain the financial position of the company.
It was Bolton who oversaw the acquisition of Aurora Funds Management in the 2015 financial year.
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AZZ Opinions, page-47
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