The US Securities and Exchange Commission (SEC) has fined two UBS advisory firms $17.5m for failing to disclose a change in investment strategy by UBS Willow Fund LLC, a closed-end fund they advised.
UBS Willow Management and UBS Fund Advisor agreed to pay a total of approximately $17.5m, more than $13m of which will be returned to harmed investors, the regulator said.
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UBS Willow Management, a joint venture between UBS Fund Advisor and an external portfolio manager, marketed the UBS Willow Fund as one that primarily invested in distressed debt, a strategy predicated on the debt increasing in value.
From 2000 through 2008, UBS Willow Management invested the fund’s assets consistent with the strategy described in the offering and marketing materials, the SEC said.
However, UBS Willow Management changed course in 2008 and instead of focusing on investments in debt issued by troubled companies, it had the fund purchase large quantities of credit default swaps, a strategy predicated on the debt decreasing in value.
"The fund started incurring big losses due to its holdings of credit default swaps, which rose from less than 2.6% of the fund’s market value in 2008 to more than 25% by March 2009. The fund continued to perform poorly due to the change in strategy and was liquidated in 2012," the regulator said in a statement.
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By GlobalDataUBS Willow Management did not provide adequate disclosure of the change in investment strategy to the fund’s investors or board of directors, the statement added.
The regulator also alleged that UBS Fund Advisor, which retained ultimate control over the fund, was aware of the change in investment strategy and failed to supervise UBS Willow Management.
