Fund chief suspended as Morgan Grenfell drops pounds 150m

Deutsche Morgan Grenfell has suspended a high-flying fund manager, Peter Young, after calling a halt to dealings in three of its funds valued at pounds 1.4bn.

Mr Young ran two of the funds, which have been suspended after the discovery of "possible irregularities on certain unquoted securities".

The irregularities are said to involve the loss of a very substantial sum of money on a number of ill-fated European investments. The losses are likely to mean the cancellation of all bonus payments this year to Morgan Grenfell Fund Management employees.

Morgan Grenfell said the suspension was "pending an investigation of the value of certain investments held by these funds".

Sources said problems appeared to be related to the funds' holdings in the high-technology sector, which fell out of favour this year. Two of the three funds are unit trusts.

Imro, the investment management regulator, said it would be conducting an investigation into the affair. The news comes just days after Jardine Fleming was forced to repay pounds 12m to clients after a fund management scandal in Hong Kong.

A spokesman for Deutsche Morgan Grenfell declined to be more specific but the market swirled with rumours that a hole of up to pounds 150m might have appeared in the funds, which, in total, contained pounds 1.4bn of investments.

"The fund managers will meet their liabilities in respect of any irregularities identified in the course of the investigations into these three funds," Morgan Grenfell Asset Management said in a statement.

The decision to suspend the dealings was reached in conjunction with the funds' trustees - one of which is Royal Bank of Scotland - and in consultation with regulators.

Of the pounds 1.4bn invested, the regulators insist that no more than 10 per cent can be exposed to unquoted securities, a more speculative investment used to boost the value of a fund's performance.

Mr Young's two funds were the unit trust MG European Growth Trust and the Dublin-listed MG European Capital Growth Fund, which is similar to a unit trust. The other is MG Europa Fund.

The manager of Morgan Grenfell's Europa investment trust - Stewart Armer - is not believed to be facing suspension or to be under investigation. Dealing in all of Morgan Grenfell's other funds is unaffected.

The Securities and Investments Board, which authorises unit trusts, said funds could request suspension of dealings in their units for 28 days. If Morgan Grenfell wanted to extend the suspension it would need the SIB's permission.

News of the suspension of the high-profit funds could cast doubt on Morgan Grenfell's bid for the Kleinwort European Privatisation Fund, a pounds 500m fund approached by 10 independent suitors.

A highly respected fund manager, with pounds 70bn under management, it was seen as one of the leaders in the pack bidding for Kepit. It wanted to broaden Kepit's mandate to a European fund. Fleming, also in the race for Kepit, might also have damaged its chances after Imro's fines last week.

Robert Fleming, the investment bank with a stake in Jardine Fleming Investment Management, one of the fund management firms censured by Imro, confirmed yesterday it had brought back some pounds 700m of funds managed by Jardine Fleming Investment Management in Hong Kong.

Jardine Fleming Investment Management is Robert Fleming's joint venture with Jardine Matheson, and analysts wondered whether Fleming was in the process of reconsidering its links with the fund management group.

But a spokesman for Robert Fleming denied the fact that the funds had been brought back to London was connected to the Imro fines, as the money was transferred earlier in the year.

"The delegation of funds was always on a temporary basis ... It is separate and unrelated ... These are British funds for British investors," he said.