Invesco Mutual Fund under regulatory scanner. Here's all we know so far

For the past few months, American asset management firm Invesco has been in the news in India for its opposition to the promoters of Zee Entertainment and the media company’s merger deal with Sony. That controversy has died down after Invesco dropped its objection and sold a big chunk of its stake in Zee this week.

But now, another arm of the US asset manager has landed in a controversy.

Invesco Asset Management (India) Pvt Ltd, the local arm of the US mutual fund house, is said to be under regulatory scanner after a whistleblower filed a complaint against the company alleging irregularities in the management of its fixed-income schemes.

First things first, who is this whistleblower?

The whistleblower was a fund manager at Invesco India and was allegedly dismissed from service in mid-2021 after the complaint was filed. For obvious reasons, the identity of the whistleblower hasn’t been disclosed.

Where did the whistleblower file the complaints?

The whistleblower appears to have first complained to senior management at Invesco and on the company’s hotline. Thereafter, the whistleblower is understood to have approached Securities and Exchange Board of India (SEBI) and the US Securities and Exchange Commission (SEC).

Separately, the whistleblower has also knocked on the doors of the Bombay High Court alleging wrongful termination by Invesco.

Why did Invesco sack the whistleblower?

According to a BusinessLine report, Invesco executives told SEBI that the fund house had observed “certain transgressions” by the whistleblower and were going to sack him irrespective of the person’s allegations.

However, the fund house hasn’t produced any convincing papers or case details regarding the alleged transgressions by the whistleblower that lead to his sacking, the report said.

But what exactly are the allegations that the whistleblower has made?

The whistleblower has alleged that a former fixed-income chief investment officer of Invesco Mutual Fund also acted as an advisor to Invesco’s offshore Portfolio Management Services (PMS) focused on Indian debt. This is a violation of SEBI regulations that there must be a proverbial “Chinese wall” between PMS and MF units. Essentially, this means the verticals must have different people and different systems in place and there should be no overlap.

The whistleblower has also alleged that Invesco India’s fixed-income team executed trades on behalf of their offshore funds. This went against rules that require the offshore counterparts to execute the trades.

Another allegation is that Invesco’s fixed-income team identified securities of some distressed companies such as Dewan Housing Finance and moved those to their offshore funds to avoid or hide potential damages in the Indian schemes. However, this could have adversely affected Invesco’s offshore clients and schemes.

So, what have SEBI and SEC done about these allegations?

SEBI is said to be examining the matter and has approached Invesco seeking clarifications. The US and Hong Kong regulators are also conducting a probe into the matters, the BusinessLine reported.

According to the report, SEBI has questioned several senior Invesco officials, including CEO Saurabh Nanavati and chief compliance officer Suresh Kakhotia.

What has been Invesco’s response?

Invesco MF, which manages about Rs 43,800 crore across various mutual fund schemes, hasn’t divulged any details on the whistleblower’s complaints and the actions it took after the allegations came to light. It also doesn’t disclose any employment details of its employees per its corporate policy.

Invesco has said that it maintains policies and procedures for investigating allegations of improper conduct received from any source and handles such matters in a manner consistent with global best practices, according to reports.

“Our portfolios and business remain unaffected. All Invesco funds and investment strategies operate under our global risk management framework and invest according to the parameters and guidelines set out in the relevant prospectus or other governing document,” an Invesco spokesperson told CNBC-TV18.