by David Chaplin
ING's troubled CDO twins – the Diversified Yield Fund (DYF) and the Regular Income Fund (RIF) – reported a collective loss of almost $260 million in the year to June 30, 2008, according to the products' latest annual report released this week.
Over the same period ING clipped just over $8.7 million in management fees, down from more than $11 million in the 12 months to the end of June 2007.
The RIF and DYF have dropped a further 30% in value since the June reporting date prompting ING to roll out a wind-up plan for the two funds that includes a $100 million upfront loan “on favourable commercial terms” to investors.
ING's plan has met with stern resistance from a group of advisers who are trying to negotiate a better deal for investors, however, the fund manager has so far refused to offer improved terms.
It is clear from the accounts that, in particular, the DYF – the largest of the two products – suffered a run on redemptions during the year to June 2008 with almost $124 million exiting the fund during the 12 months and only $2.5 million being contributed.
By contrast, the RIF saw redemptions of more than $45 million versus contributions of $31.6 million over the same period.
As at the end of June 2008, the DYF total funds stood at just over $275 million compared to more than $592 million at the beginning of the 12-month period.
Meanwhile the RIF funds under management slumped to $134 million at June 30 this year, down from almost $247 million a year previously.
According to ING's latest figures, as at the end of November the DYF is now valued at $189 million while the RIF has shed a further $50 million in value since the end of June with total funds of $84.3 million.
Both the RIF and DYF were frozen from redemptions in March this year.
Most of the decline in the funds' value was due to serious ructions in world credit markets with collateralised debt obligations (CDOs) and collaterised loan obligations (CLOs) – the principal investments of the RIF and DYF – collapsing globally.
In the year to June 30, 2008, the DYF still earned almost $33 million in interest for investors, which was about $7.5 million less than the previous year. The RIF turned in a better income performance over the 12 months to the end of this June, earning $15.7 million in interest, up from $12 million in the year prior.
However, according to an ING statement, about 10% of the underlying DYF investments have now defaulted with a further 17% reported as impaired.
Similarly, almost 9% of the RIF investments have defaulted and 15% of the fund has been categorised as impaired.
It is understood ING's wholesale New Zealand fixed interest fund has also suffered a performance decline recently as a result of holding a number of CDOs in its portfolio.
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