"I never intended in any of these transactions to manipulate the market," says Mark Warminger, the Milford Asset Management portfolio manager facing accusations of market manipulation over 10 trades in 2014.
Warminger is giving evidence at the High Court trial brought by the Financial Markets Authority alleging he breached securities law by giving a false and misleading appearance in the market.
The British-born portfolio manager, who is a qualified diving instructor and helicopter pilot, came to New Zealand in 2006 after travelling around the world for 18 months and went to work for Milford in 2011.
Milford was one of the biggest fund managers and trading more heavily than its competitors. The New Zealand market was illiquid compared to international markets, and the larger Milford got, the harder it became to trade without having an impact on market prices, Warminger said.
He told the court he had no intention to manipulate the market but his trading was either aimed at taking advantage of short-term trading opportunities to make a profit or on long-term holdings considering the average price paid for the stock and whether the return was worth selling larger volumes.
It was not unusual to buy small amount of stocks in the morning and then sell a large quantity later in the day even if that was at a similar or even lower price, he said. While that may not seem commercially rational based on that one trade alone, there were a lot of other factors taken into consideration including whether he needed to make cash-flow trades - buying more of an existing stock in funds because of new capital that had been invested, he said.
Warminger's trading has been described by FMA and others as aggressive but he said "I would label it decisive. I did what I needed to get it done."
He ran five wholesale equity funds, though one closed in June 2014, and actively traded them which was unusual for a portfolio manager. The fund mandates under his control had the same risk tolerance and performance objectives were broadly the same. "The funds were essentially run as one pot of money," Warminger said
He had to outperform the benchmark by a certain percentage which meant he had to actively trade shares to take advantage of short-term opportunities and because the wholesale funds didn't have the inflow of money the retail funds did, in particular the KiwiSaver funds, Warminger had to sell stocks in order to make investments in new companies he was interested in.
He had a mandate to trade 200 per cent of turnover, so on funds of $750 million he could trade $1.5 billion a year. It was not unusual for him to trade 250 times a week.
The FMA has indicated Warminger was under pressure because his six-month performance to June 2014 was under-performing benchmarks.
But most of the funds had performance fees relating to one year or three year rolling averages and the only one that fell within the period of the alleged market manipulation accounted for just 3 percent of the total funds under Warminger's management, he said.
His lawyer Marc Corlett QC asked whether he had experienced underperformance relative to the benchmark before.
Warminger said after running high active equity funds for 16 years and going through the tech crisis, the global financial crisis, and volatility along the way, he had generally had very good performance "but there had been times I under performed for four, five, six months. It was part of the business and you just had to wear it and get on with it."
He rejected the FMA's suggestions that he traded through direct market access, which allowed his trades to be anonymous, in order to conceal his trading and says whether he used DMA depended on various factors, including the fact it attracted less fees than using a broker to facilitate a trade.
"There is no one-size fits all, investment is not 100 percent scientific," he said.