Star manager Alexander Darwall apologises for stock pick ‘disaster’

European Opportunities Trust manager says sorry for having had ‘too much’ of German fintech firm Wirecard in the portfolio.

Potential fraud at German fintech company Wirecard has weighed heavily on European Opportunities Trust, run by star manager Alexander Darwall. In recent weeks auditors of the firm’s accounts flagged evidence of potential fraud at the company, most notably raising questions about a potential €2 billion (£1.8 billion) missing from its accounts. Wirecard has subsequently filed for insolvency. 

This led to heavy selling of the company’s shares: they fell by 65% on the day that news broke (18 June). The company had been a longstanding holding of European Opportunities Trust, being held for 13 years and accounting for 10% of the trust’s portfolio as at the end of May. The trust, though, says that as of 18 June it held no shares in Wirecard.

While it is always easy to look back at the obvious with hindsight, it is worth noting that there were already plenty of red flags around the company.

For around a year, a journalist from the Financial Times had been reporting that the company may have been inflating some of its revenue. As investment trust broker Winterflood notes: “This was a high-profile case that the Financial Times had been pursuing for some time. Despite this, Alexander Darwall had been consistent in his support for the company and its management team.”

Indeed, as recently as January this year he remained confident in Wirecard’s business model, noting that he would continue to support the management “until and unless there are substantive and substantiated charges”.

In response to allegations in March 2019, Wirecard threatened to sue the Financial Times reporters and separately in July accused the journalists of colluding with short sellers.

The blunder comes at a sensitive time for Darwall. The European Opportunities Trust had previously been managed by Darwall while he was employed at Jupiter. Last year, however, Darwall departed Jupiter to set up his own asset management firm, Devon Equity Management, taking the mandate for the trust with him. There are reports that management at Jupiter had previously queried the size of Darwall’s holding in the company with him before his departure; at one point it had reached 17% of the portfolio.

Darwall has since apologised. In a video posted to Devon Equity Management website he said: “Wirecard I got wrong in two senses. One is clearly the share price performance has been disappointing. And I must apologise to people for having too much in it, which is a fault I accept.”

The view of Winterflood, however, is that this was a singular mistake in an otherwise successful trust and portfolio manager. The broker notes: “Despite the recent fall in both share price and NAV, European Opportunities Trust still has a strong long-term track record. Over the last 10 years, its NAV is up 253% on a total return basis compared with 109% for the MSCI Europe index, while its share price total return is up 278%. However, the manager’s reputation will undoubtedly be hit as a result of Wirecard and we suspect that it may take some time before the fund trades on a premium rating again.”