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Absolute investors await final sentence

Creditors of the almost-defunct Australian hedge fund manager Absolute Capital have agreed to a plan put forward by the firm's voluntary administrator that will wind up most of the group and transfer investment management duties to ABN Amro Australia.

Friday, February 15th 2008, 6:59AM

by David Chaplin

In a meeting in Sydney late on Wednesday creditors voted to approve the proposals of the administrator, McGrath Nicol, to wind up Absolute Capital Limited (ACL) and execute a deed of company arrangement for Absolute Capital Group Limited (ACGL), the entity responsible for managing the underlying investments.

In an earlier report McGrath Nicol estimated ACL creditors could expect between 0.3 and 34 cents in the dollar.

Under the proposed deal ABN Amro Australia, which owns 50% of Absolute, will novate (or formally take over) the roles of ACL and AGCL, including control of the group's NZDX-listed PINs products.

In a statement to the NZX yesterday PINs Securities NZ (PNZ) said: "PNZ will continue to obtain further advice and consult with relevant stakeholders concerning the proposal with a view to novating the existing agreements across to the new entities."

Absolute raised around $80 million from New Zealand investors in its two listed capital-guaranteed PINs products, which were caught out by the US sup-prime crisis and consequent global credit crunch last year.

It is understood the group has also raised a substantial amount directly into the flagship Absolute Yield Strategies Fund from New Zealand investors.

According to a story in the Australian Financial Review (AFR) last Friday, Absolute had raised close to A$200 million in the Yield Strategies Fund, which the PINs products also invested into. The Yield Strategies Fund is now estimated to be worth A$180 million.

"Investors are not expected to retrieve their money for another 12 to 18 months, as assets are sold down, and the final amount could be much less than $180 million," the AFR story reported.

In its report to creditors McGrath Nicol also noted Absolute may have been overcharging performance fees for "a number of years", leaving the group open to further claims.

"This issue has recently come to light and detailed calculations are yet to be completed to estimate the financial impact," the McGrath Nicol report said. "The issue affects existing funds and also funds that have already been closed. Should our initial view be correct then it may be that additional claims may be lodged against ACL."

In its annual report for the year ended June 30, 2007, PNZ also recorded an accounting error that had led to "double counting two months coupon interest" to the tune of $476,532 in the PINs 2005-1 product. PNZ had also neglected to provision for a "realisation fee" of almost $1.6 million due to the lead manager if the product closed before maturity.

Consequently, PNZ was forced to write down the net fair value of its investments by over $2 million.

"The previously disclosed accrual for bonus interest - PINS Series 2005–1 of $620,077 and the accrual for bonus interest - issuer manager - related party of $620,077 have been reversed and replaced with a provision for realisation expenses of $815,314," the PNZ annual report said.

The PINs 2005 (A) shares last traded on January 29 at 56 cents while just over 100,000 PINs B shares changed hands on February 13 at 51 cents.

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