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LM rubbishes liquidity crisis claims

LM Investment Management has rubbished claims that its first mortgage fund is suffering a liquidity crisis.

Tuesday, April 15th 2008, 5:49AM
A report suggested that there had been a run on the fund following an unfavourable rating from Australian research house Lonsec. It went on to say that the "record number of redemption requests" had compromised the liquidity of the fund.

New Zealand investors are thought to have around $130 million invested in the fund.

LM said in a statement yesterday that the report in question was written in 2006. It is understood that once the report was released some Australian advisory firms had to exit the fund as their professional indemnity insurance barred them from investing funds which were off research house recommended lists.

It went on to say that the fund was structured in a way to diminish the possibility of a run on funds.

The LM First Mortgage Income Fund has 15% of its investment 'at call' and 85% on fixed investment terms.

This "insulates the (fund) from a typical 'run' and allows tight and accurate liquidity management as investments can only be redeemed at maturity. This is unlike most mortgage trusts which sit with 100% of investments at call."

Also the fund is structured for automatic rollover of investment.

"At investment maturity, every investor has the legal right to decide whether to rollover or redeem. Over the past couple of years, those investors connected to that research have simply exercised the right to redeem. The rollover rate of the fund since 2006 has averaged 71%."

LM says the fund delivers a gross rate of return that exceeds cash by a minimum of 2.00% annually, and it believes this return is appropriate for a first mortgage fund with an average loan to valuation ratio of 64%.

It says the fund "continues to outperform other first mortgage trusts" and that it has an investment grade qualitative research report from Morningstar.

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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 4.09 4.49
ANZ Special - 3.65 3.59 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
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China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 3.99
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 3.59 3.99
Median 5.35 4.15 4.09 4.19

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