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Repayments of OnePath mortgage fund delayed

The Financial Markets Authority won’t be taking action against OnePath over a troubled mortgage fund that was the subject of a complaint to the regulator.

Friday, December 2nd 2011, 7:09AM 4 Comments

by Niko Kloeten

Earlier this year OnePath announced it had decided to wind up the Private Portfolio Service (PPS) Superannuation Fund scheme, as well as the PPS Mortgage Trust.

However, according to a recent memo to advisers, payments from the mortgage trust wind-up are on hold for now.

"We had intended to make an initial distribution from the Mortgage Fund this month however, the Trustee, who is the independent third party with ultimate oversight of the Fund, has determined that a partial wind-up distribution cannot be made at this stage," OnePath's memo said.

"This is due to an on-going contractual arrangement with Portfolio Mortgage Company Limited."

The fund holds liquid assets of about $31.2m as well as mortgage or loan assets of about $15.1m, however, "This arrangement obligates the fund to advance up to $50m of mortgage or loan assets on demand."

Good Returns has obtained a copy of a complaint about the mortgage fund, laid by an adviser who claimed some of ANZ's actions over the fund hadn't been in investors' best interests.

"Until recently a number of investors held units in the PPS Mortgage Fund "B" Units. OnePath, via ANZ, purchased all the "B" units for cash," the claimant said.

"Instead of repaying the funds to the mortgage fund "B" unit holders, OnePath unilaterally swapped the "B" units for units in the PPS Mortgage Fund.

"In a number of cases OnePath held instructions to repay the "B" units when available. These instructions were ignored and replaced with the unauthorised swap method."

The complainant also said the size of both the mortgage fund "A" and "B" units has been well under the $50m mark for quite some time, and "neither OnePath nor the Trustee [Guardian Trust] has acted to warn either advisers or investors that this could cause the fund to be suspended."

However, the FMA said ANZ's purchase of the illiquid "B" units complied with the trust deed, which "required upon the realisation of the B Units they be cancelled and "...be applied immediately thereafter towards subscription for A Units...".

"The Trustee has advised me that they sought independent legal advice and that unfortunately the strict terms of the unit trust trust deed has resulted in the proceeds received for the B Units being required by the terms of the trust deed to be used to buy A Units. 

"The Trustee has further determined that the requirement to have funds available to meet the PMCL funding obligations prohibits a partial distribution at this time.

"I appreciate that this was not the outcome that OnePath anticipated and that earlier communication material may have indicated that the proceeds of the B Units may be available for distribution this month and that this will now not occur."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

« Botherway explains OnePath clean-outKiwiSaver mismatch a 'huge challenge' for advisers »

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Comments from our readers

On 2 December 2011 at 11:36 am Ginge said:
OK, so as an investor with a significant portion of my life savings tied up in this mess. Should I be worried? Should I be taking some legal advice? I just got off the phone to my financial adviser who said I should be writing a letter of complaint to ANZ!
On 2 December 2011 at 5:45 pm Curious said:
Does anyone know or have OnePath disclosed the status of the existing loans to PMCL or the financial health of PMCL?
On 2 December 2011 at 9:55 pm Gary O said:
Re Ginge:
If you have a significant portion of your life savings tied up 'in this mess' I would also be seeking legal advice as to why your 'financial adviser' has put an apparent disproportionate amount of your savings in only one investment.

Diversification is normally a starting point of any well balanced investment portfolio.

I would also him / her why they recommended the PPS mortgage fund in the first place and ask how much trail commission they have been receiving from One Path vs what the industry norm is on similar products in the market place.

I am sure you will find the answers somewhat enlightening.
On 3 December 2011 at 8:49 am Independent Observer said:
Whilst the FMA’s response would indicate that OnePath are within their rights to suspend the winding up of this product, it may pay to review the prospectus to understand whether OnePath’s actions to delay are in breach of their legal duties.
Commenting is closed

 

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