The California-based fund manager Franklin Templeton has been forced to halt plans to wind up six of its Indian funds after Gujarat High Court intervened to suspend the procedure amid allegations that the US firm mismanaged the assets. The fund manager sparked panic in Indian capital markets in April when it announced it would freeze and close six funds that had invested in lower-rated debt in search of higher yields.
The move, which trapped about $3bn of customers’ funds, prompted outrage from some investors who argued that the asset manager had put their money in peril through excessively risky lending practices, and should have sought their approval before shutting the funds. Franklin Templeton had planned to allow investors to start voting on winding up the funds, asking 300,000 unit-holders whether the liquidation should be managed by the funds’ trustees or a third party, Deloitte.
But the Gujarat High Court ruled that the vote could not go ahead until an audit of the six funds was made public. Justice Gita Gopi ordered that “the unit-holders would not be having the opportunity of informed decision making” until they had seen the report on the alleged mismanagement.
The process would be stayed until “the forensic audit report comes in public domain,” she wrote. The judge was responding to Franklin Templeton’s appeal against an earlier decision to delay the process last week. A spokesperson for Franklin Templeton said the company would halt the winding-up process, but planned to appeal the order. The company denied allegations that it has mismanaged the funds.
“We continue to follow due process, both in making investment decisions and in the winding up of these schemes,” the spokesperson said. “We have acted in the best interest of our investors and in accordance with all regulations.” The asset management giant has previously said that suspending redemptions and winding up the funds was necessary to protect investors’ money after the coronavirus pandemic drained liquidity in the country’s debt markets. It also said that investors had been warned of the risks inherent in such funds.
However, some investors worry that Franklin Templeton’s decision to wind up the funds means they will lose substantial portions of their investments. The turmoil added to strain on India’s already weakened financial system, prompting heightened outflows across mutual funds as panicked investors in other funds sought to protect their assets.
