The multibillion-dollar Salter Brothers asset management empire was seeded with money from Chinese investors steered into a fund run by Michael Gu, the Lamborghini-driving alleged fraudster who fled the country after his property business collapsed owing more than $60 million.
Documents and investor testimony obtained by The Australian Financial Review show that the foundations of Salter Brothers’ $4 billion portfolio can be traced back to the Atlas Capital SIV Fund – a 2015 vehicle co-founded by Gu and Paul Salter to attract wealthy Chinese nationals under a scheme that offered visas in return for major investments in Australia.
Michael Gu left Australia after the collapse of his iProsperity business in 2020. He was spotted in Hong Kong earlier this year.
Gu fled overseas after the collapse of his iProsperity Group and allegations he used investor money to fund his lavish lifestyle. He is now living openly in China, and associates who requested anonymity to speak freely say he regularly hosts poker nights at luxury hotels such as the Rosewood Guangzhou and is raising capital for ventures in Hong Kong and Singapore.
Salter Brothers has erased Gu from all of its promotional material, and is preparing to list on the ASX. The company owns a string of properties including luxury hotels in Sydney and Melbourne that are being rebranded Regent Hotel & Resorts. It is also redeveloping a hotel on the Gold Coast.
An information memorandum circulated by Atlas Capital to Chinese investors in 2017, however, listed Salter Brothers managing director Paul Salter as the firm’s chief executive. Gu is listed as director of investor relations. The 98-page Atlas Capital document outlines options overseen by Salter Brothers ranging from term deposits to venture capital. Atlas Capital was marketed to Chinese businessmen through Austar Immigration, according to clients who requested anonymity to speak freely.
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According to documents and investor contracts, Austar was a key intermediary sourcing high-net-worth individuals from mainland China keen to immigrate to Australia. Under the Significant Investor Visa scheme, which ended last year, residency was fast-tracked for wealthy immigrants who agreed to funnel at least $5 million into eligible businesses.
Austar would ultimately direct some of that money into investment vehicles run by Salter Brothers including a property and hotel fund vehicle known as the Series K (Yield Asset) Fund. Materials circulated by Salter Brothers show that fund targets a 6 per cent annual return, with the firm collecting a 2 per cent management fee and a 25 per cent performance fee.
ASX listing
The unit price for Salter Brothers’ Series K fund – which owns the InterContinental and Crowne Plaza in Melbourne, as well as the Hyatt Regency in Brisbane and several other hotels – has dropped from 98¢ in July 2015 to 83¢, according to updates sent to investors in December. Redemptions have also been frozen, and distributions suspended.
“The Salter Brothers Series K Fund’s largest investment is the Salter Brothers Hotel Group,” the update reads. “International inbound travel continued to recover throughout the year, albeit at a rate lower than that forecast by Tourism Research Australia. Domestic tourism, on the other hand, faced headwinds probably from high cost-of-living pressures.”
“We understood that COVID made things difficult for the funds, but it has now been nine years,” one investor who requested anonymity said. “We are now all trapped. We came with such good expectations.”
Salter Brothers, which now has almost 5000 hotel rooms in its properties, is working towards an ASX listing for a $2.5 billion hospitality portfolio that would be one of the largest such vehicles in the Asia-Pacific.
It has expanded aggressively recently, acquiring a portfolio of Bannisters hotels that include restaurants operated by celebrity chef Rick Stein. Earlier this year, it unsuccessfully proposed a $940 million refinancing of Star Entertainment which would have left it controlling the casino giant.
The Australian Financial Review is not suggesting Salter Brothers was involved in Gu’s alleged fraud, which only became clear when iProsperity failed.
Gu fled the country after the collapse of iProsperity, which administrators blamed on his “potential misuse of investor funds” and “potential improper conduct”. The report said $290,000 was used to partially fund the purchase of a Lamborghini Urus on May 13, just weeks before iProsperity collapsed.
“The company appears to have used funds raised from investors and deemed to be held on trust in a manner which was inappropriate and in breach of certain agreements between investors and the company,” iProsperity’s administrators at KPMG wrote to creditors in 2020.
At the time, the Financial Review reported that Gu was a regular at high-roller rooms in Macau, The Star in Sydney and the Sands in Singapore, splashing out on extravagant meals and bottles of wine that cost $3000.
Salter Brothers and Austar did not respond to requests for comment.
Gu had extensive ties with the Salter Brothers business, however. Liquidator reports show an entity linked to Gu – known as Magic Jade – received a convertible note worth $1.87 million as partial repayment of an issue by iProsperity before it collapsed. One of Magic Jade’s directors, Fuyin Fan, is also a director of Salter Brothers entities, according to documents filed with the corporate regulator.
Paul Salter and Fuyin Fan are not accused of any wrongdoing.
A Hong Kong-incorporated Atlas Capital entity listed SB Investments (Hong Kong), where Paul Salter is a director, as a shareholder alongside Elephant Tribe Capital (Hong Kong) Co, where Gu is a director. Atlas Capital’s Hong Kong-incorporated business has since been struck off the register.
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