Towards the end of last year, a German journalist, Christian Kirchner, stumbled across an intriguing fact: one of Germany's leading fund managers had made what Kirchner described in the Finanz-Szene newsletter as a "crazy bet" on Wirecard.
Tim Albrecht, manager of the flagship Deutsche fund at asset manager DWS, had allocated almost 9.2 per cent of what was then a €5.1 billion ($8.8b) fund to shares in the Germany payments company. Given that any one holding in the fund portfolio had a regulatory cap of 10 per cent, Kirchner noted that Albrecht had effectively gone "all in".
But there was more to this. Albrecht had also spent 9 per cent of a second, smaller fund under his management — DWS Investment German Equities — on Wirecard stock. Meanwhile his colleague, Christoph Ohme, managing the DWS Investa fund, had allocated 7.2 per cent of that fund to Wirecard. Another two DWS fund managers had also proved hungry for Wirecard, making this asset management subsidiary of Deutsche Bank one of the payment processor's largest shareholders.
Such investment weightings were completely out of kilter with Wirecard's own weighting within the prestigious Dax 30 index, which mainstream Germany-focused equity investment funds would be expected to loosely track. At the time, Wirecard's Dax weighting was 1.7 per cent, compared with Albrecht's 9.2 per cent.
What is more, these weightings were out of kilter with DWS's past interest in Wirecard.
Cross-checking between monthly portfolio updates from DWS and official voting right notifications made by Wirecard, Kirchner was able to see that the fund manager had at least doubled its holding in the payment processor in the space of three days, between October 15 and 18 last year.
That was significant because it showed that DWS managers had gone on a Wirecard buying spree immediately after the Financial Times had published extensive evidence suggesting that a large portion of Wirecard's revenue and profits did not exist. Albrecht and his colleagues had bet more than €500 million of their investors' money that the FT reporting was wrong.
DWS vowed this week to pursue both the company and its departed chief executive Markus Braun through the courts, seeking damages. Across all its funds, exposure to Wirecard was cut substantially in May, following the publication of the special audit by KPMG, which failed to verify that substantial amounts of the company's reported profits were genuine. This week, as shares in Wirecard lost four-fifths of their value, DWS reduced its ongoing exposure to zero.
Braun resigned on Friday as the accounting scandal engulfed the business he had run for 18 years.
In his wake, other fund managers will be assessing how much monetary and reputational damage the Wirecard affair has brought.
The UK's Alexander Darwall, routinely described as a "star manager", built his personal brand at Jupiter Fund Management. The performance of funds under his guidance there benefited massively from heavy holdings in Wirecard across a period when the German company's stock rose six-fold.
When Darwall left Jupiter in July last year to set up his own firm, Devon Equity Management, his successors sold down their Wirecard holdings. Darwall, however, stayed loyal to the payment processor, maintaining heavy exposure for the Jupiter European Opportunities investment trust, the management of which shifted with him to Devon.
At its peak last year, Wirecard represented 17 per cent of the investment trust's assets. However, that had fallen to 10.8 per cent at the end of December, mainly because of the fall in Wirecard's price as financial markets digested FT reporting on the company's apparent problems.
In January, Darwall apologised to investors "for having too much in it", but reiterated his admiration for the company and its business model.
"They fit what we look for. They do something special and different and better than other companies and they can monetise it," he said at the time. "So I'm extremely comfortable with the Wirecard investment. I might remind you I invest in companies — not stock — and the point about Wirecard is: it's a great company."
After Thursday's revelations, Darwall sold his entire position.
Beyond fund managers themselves, several of those offering the asset management industry advice will be feeling uncomfortable, namely the sellside research analysts.
Analysts from at least half a dozen banks still had "buy" recommendations on Wirecard stock ahead of this week's shattering news, several with outlandish price targets. Marius Fuhrberg of Warburg Research, for instance, told clients on June 11 that he saw what was then a 146 per cent upside for the shares, publishing a target price of €230. Knut Woller of Baader Helvea topped that with a forecast of €240, while Heike Pauls of Commerzbank, who has repeatedly and aggressively dismissed criticisms of Wirecard, set her €230 target price in mid-May, heralding a "strong buying opportunity" when the shares were trading at "an excessive discount".
Shares in Wirecard on Friday closed 35 per cent lower at €25.33.
Written by: Paul Murphy
© Financial Times