The Capital Markets Authority (CMA) of Kenya has raised concerns over complaints it has received from investors in a fund run by Cytonn Investments Management Plc.
In an affidavit filed at the High Court in Nairobi, the regulator (CMA) states that investors are unable to redeem the cash they invested in Cytonn High Yield Fund (CHYF).
A letter dated 21st September 2020 by CMA to Cytonn is seeking for the fund manager to resolve these investor complaints it has received against the investment firm.
A copy of the affidavit filed in court by the Authority, seen by Kenyan Wallstreet, shows that the regulator has so far received complaints from investors who are owed upwards of KSh 122.8 Million in unpaid claims. CMA says the investors are unable to cash in their investments-that have matured.
The authority notes that Cytonn Investments has failed to meet its contractual obligations with investors and further warns that the risk of default has started crystalizing and continued investment in Cytonn’s CHYS and its real estate notes is likely to expose more investors the risk of their investments.
In the affidavit, the regulator says that failure by Cytonn to comply with provisions that guide the Collective Investments Schmes “exposes the investors to the risk of losing the hard earned monies they have invested in the event of any adverse eventuality in Cytonn Investment Management Plc and its promoted Real Estate or other investments as the concentration risk is higher on account of the investments being all under related entities.
The Authority argues that while Cytonn Investments needs to make profits and meet obligations, this does not absolve either Cytonn Asset Managers Limited or Cytonn High Yielding Fund as well as CMA from their statutory duties.
The spat all begun when Cytonn requested to be allowed to invest more than 10% of its funds in the Cytonn High Yield Fund (CHYF). The Authority did not process this request at the first instance and communicated its reasons for not progressing on June 3, 2020.
It is at this point that Cytonn went to court to challenge this decision. While the matter was still in the courts, Cytonn requested for a review of the decision by CMA.
The Authority then favourably considered the request and on 17th August 2020 granted a no-objection to Cytonn High Yielding Fund(CHYF) to invest up to 25% of its assets under management in Cytonn-related projects.
Despite granting CHYF its request, Edwin H. Dande, Chief Executive Cytonn Investment Management Plc filed a petition at the High Court challenging the earlier decision by the CMA to limit the firm’s investment in its own instruments to 10%.
The CMA requested Dande to withdraw the petition, considering that Cytonn High Yielding Fund( CHYF) request to invest up to 25% had already been granted. However, he has declined to do so.
In the court papers, CMA says it had discussed and agreed with Cytonn Investment Management Ltd that the Cytonn High Yielding Solutions (CHYS) should be converted into a regulated investment vehicle.
At the first instance, CHYS was to be converted into CHYF, but that was abandoned in favour of conversion into a D-REIT.
CMA says that Cytonn has been slow in meeting the regulatory requirements to allow for completion of the transition of CHYS into a D-REIT.