Astarra's Shawn Richard pleaded guilty to two charges of dishonest conduct in the course of carrying on a financial services business and admitted a third charge of making false statements in relation to financial products.

According to ASIC's website, Richard, 35, appeared at Sydney's Downing Centre Local Court on 7th December to face allegations that he dishonestly received undisclosed payments in his role as investment manager of the Astarra Stategic Fund (ASF) and Astarra Superannuation Plan (ASP) and that he knowingly made materially misleading statements about the value of investments made by the ASF.

ASIC alleged, among other things, that Mr Richard was involved in causing the ASF and ASP to place investor monies in overseas hedge funds, in circumstances where Mr Richard would personally receive a significant portion of the monies for his own benefit and for the benefit of his company, AAM. The monies Richard placed in the overseas hedge funds had been raised by the responsible entity of ASF, Trio Capital Limited (Trio). ASIC alleged that Richard and AAM received in excess of $6.4 million in undisclosed payments.

ASIC also alleged that Mr Richard made materially misleading statements about the value of the ASF's investments in the overseas hedge funds, knowing that these statements were included in valuation statements provided to Trio and were likely to have the effect of inducing Trio to seek further investments in the hedge funds.

The charges each carry a maximum penalty of 5 years' imprisonment or a $220,000 fine, or both when Richard returns for sentencing on 4th February 2011.

The nature of a market generally ensures there's a wide range of opinions from managers, but in September there were some consistent themes amongst managers' performance commentaries.

Overall average performance for the month was strong on the back of the strong rally in equity markets, particularly in the US, a weak US currency, and strong commodity markets.

In Australia the strong performance of many second tier resource stocks was a welcome reward for managers focusing on that sector, particularly as the US dollar weakened and gold rose. However a couple of interesting comments emerged, such as Optimal's George Colman, who noted that of the ASX200's rise of just over 4% for the month, three quarters of it could be attributed to the market's sharp rally in the first four days of the month.

Looking forward the most recurrent comment, and in many cases concern, pointed to the highly anticipated QE2, or quantitative easing in the US. While most commented that given the US' lacklustre economy something needs to be done, the concern lies in what happens next in the event that a further easing doesn't kick-start the economy, and the inflationary pressures that printing more money is going to have. Kapstream's comment in particular was both insightful and creative, likening the anticipated QE2 to the Cunard liner of the same name which having once ruled the waves in many roles, now sits in Dubai waiting....

Most managers still seem to consider the markets to be finely balanced, and there aren't too many rampant bulls, with many keeping their powder dry until more convinced that the rally can push on through resistance without being derailed by some macro issues from offshore..

The debate over how Super Funds report returns - net of fees or gross - is once again generating debate amongst the financial services industry, but isn't the answer pretty obvious?

For some sections of the industry to prefer to report gross returns seems illogical - or at least self serving.  The hedge fund and absolute return sector, long criticised for having high fees, generally reports returns on a net basis and has always been transparent, (with few exceptions) on both the level and structure of fees.  There seems no reason for the superannuation sector not to do the same.

AFM has long held the view that the debate over the size of a fund manager's fees is to some degree academic.  Surely what is vital is the actual return received by the investor once all fees, charges, costs and commissions are taken into account.  Funds should be avoided if the fee structure does not align the manager's interests with those of their investors, and managers should be held to account if fund performance fails to match their stated objectives.

So we would agree with David Whiteley, chief executive of the Industry Super Network, and others in their argument that fees should be transparent and returns reported on a net basis.

Once that's achieved it is hoped that investors (both institutional and retail) will focus more on returns, preferably on a risk adjusted basis, and other key performance criteria, to allow informed debate, choice and decisions.

With the ASX200 rallying over 5% in September, and the S&P over 8%, initial results based on 20% of results to date have seen some strong results.  Average results from all funds received to date are up 2.88%, with equity based funds up 3.08% reflecting the equity rally.

Strongest performances to date include Commodity Strategies Long/Short (+11.05%) and Long Only (+7.53%), Matthews Global Macro Velocity Fund (+10.76%), K2's International (+8.39%) and Asian (+7.61%), and Pengana's Global Resources Fund (+7.93%).

No currency funds have reported as yet, and with the surging A$ it will be interesting to see results from the FX funds as the month progresses.

We can’t help feeling that amongst the great fee debate sparked by the Cooper Review, some people are missing if not “the” point, at least one important factor: PERFORMANCE.

AFM’s E5 Model Portfolio for instance consists of five equity based funds which charge management fees of up to 2% and a performance fee (above a hurdle)of 20%. The net annualised performance, after fees, of these managers over the past 45 months has been close to +15% whilst the ASX has fallen at an annualised rate of over -5%.

Of course high fees can detract from investors’ returns, but fees should be considered as part of the overall return. It is all well and good to compare the effect of different fees on identical returns, without considering the performance of the underlying investment.

By all means debate, compare and consider fees, but don’t forget the effect of performance. There seems little point in selecting an investment with poor or negative returns just to save on fees.

A global survey of 50 institutions by research house Preqin has found significant shifts away from investing through fund of funds at the same time as their overall appetite for the hedge fund sector is increasing. 64% of the respondents made their first hedge fund investment though a fund of fund, but only 36% of those continue to do so.

The GFC and 2008 were obviously a turning points for the industry as the survey showed that 80% of respondents that have moved away from fund of funds did so in 2008 or after, presumably as a result of liquidity, performance or transparency.

Other key findings included:

• 64% of respondents entered the asset class through fund of funds investments, but only 36% of these continue to invest solely through funds of hedge funds.
• 36% of respondents that currently invest solely in funds of hedge funds plan to move towards direct hedge funds in the future.
• 60% of respondents cited the extra layer of fees as the main reason they moved away from funds of hedge funds.
• Greater control over their investments (54%) and more in-house resources (13%) were other reasons cited for the move into direct investment.
• Public pension funds still invest heavily in funds of funds, with two thirds of public pension funds only investing through funds of hedge funds.
• Endowments and insurance companies are the largest investors in direct funds, with 66% and 50% respectively only investing in hedge funds directly.

ATTACHED FILESPreqin fund of fund survey (pdf format)

There will be no doubt be more to come from the Trio Capital saga and the liquidator's public examination of Shawn Richard, but how do you tell when he's telling the truth?

A: Probably never.

No doubt an enterprising journalist will one day write a book about the real story behind Shawn Richard, the Astarra Strategic Fund and Trio Capital, but whether it will be found in the fiction or non fiction section of the library is anyone's guess.

Uncovering the truth will take some doing simply because Richard's version of events, his past, his motives and his actions seem to depend on who's asking, and how he feels on the day. Although quick to claim privilege on day one of the liquidator's questioning, Richard has yet to use the "I can't recall" response, but it is only early days yet.

For a history of the debacle, try the Sydney Morning Herald's website here