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ING and LM Investments battle over fund redemption

ING is splitting its $81 million PPS Mortgage Fund into two separate classes as its investment committee has concerns over one of the three underlying managers.

Tuesday, March 31st 2009, 5:21AM

by Philip Macalister

The PPS fund currently has half its money with three managers; Australian-based LM Investments, Equitable and the Portfolio Management Group. The other half of the fund is in cash.

Head of the investment committee, Jeremy Thompson, says there are concerns over the ability of LM to repay the money in its LM Currency Protected Australian Income Fund.

He says ING requested to redeem all its $10 million investment with LM back in September, however it had been told that the redemption wouldn’t be made until September this year, and that a A$150 million first ranking secured credit facility to Commonwealth Bank of Australia had to be repaid first.

LM is scathing about the decision and says it is quite within its rights to delay redemption requests.

“LM is utilising this protective mechanism to ensure optimum investor protection.”

It says the world is in one of the worst financial crisis in decades and as a responsible manager, it has to use strategies that assist in “mitigating the risk of loss of capital during periods of sustained volatility.”

LM chief executive Peter Drake says the company won’t be held to ransom by ING.

He says ING can’t just “whimsically” take all its money out of the fund. LM makes up around 12% of the PPS Mortgage Fund and this portion of the fund will be put into new B Class units. Investors will be able to trade the A Class units normally, however the B Class units will not be redeemed until LM has repaid the investments.

Thompson says the changes are likely to come into effect in May. In the meantime redemption requests will “temporarily” be put on hold, he says.

Thompson describes this as “an elongation of the notice period”, not a suspension of redemptions.

He says the move is a prudent one to protect investors.

Although there is a lot of concern around mortgage funds, he believes the rest of the PPS Mortgage Fund is fine.

“No there is not a fire burning underneath it,” he says. “This is just a whiff of smoke.”

Thompson says because of the concern about mortgage funds, the PPS is holding large amounts of cash.

He says half the fund is in cash to show investors it has liquidity.

While the PPS investment committee is concerned about LM it hasn’t any information that the firm is in trouble. Rather it feels LM has some growing liquidity issues and it wanted to ring fence that portion of the PPS fund.

He says the ring fencing is a temporary step for the benefit of all investors. LM’s Drake says there are no liquidity issues.

“Since inception, each of the LM funds has consistently achieved zero volatility on unit prices, with no capital loss to investors”.

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 7.99 7.49 7.35
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BNZ - Classic - ▼7.29 ▼6.85 ▼6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
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China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.15 - -
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Co-operative Bank - Standard 8.40 7.85 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
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Heartland Bank - Reverse Mortgage - - - -
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HSBC Premier LVR > 80% - - - -
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ICBC 7.85 7.05 6.85 6.59
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Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
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Median 8.64 7.45 7.37 6.77

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