by Jenny Ruth
HMF lost $1.1 million on its Pike Rive Coal stake after its mining disaster and a further $0.8 million on its stake in New Zealand Oil & Gas, Pike's major shareholder, the managers say in their sixth update for HMF investors.
Other losses included $3.5 million on Mercer Group, of which HMF currently owns about 17.8% after having invested a further $1 million since January 31, and just under $1 million on Olympus Pacific.
The statutory managers say the losses could have been greater: they sold 400,000 NZ Oil & Gas shares and 446,386 Pike shares shortly before the Pike disaster on November 19 last year.
They also sold shares in Olympus and collectively these sales saved investors from losing more than $675,000.
"We have commented in past reports on the significant levels of HMF investment in the resource sector and also in stocks where there is a very limited market," the managers say.
The HMF portfolio is susceptible to swings in stock prices and it's difficult to sell shares when share prices are falling or when companies have negative outlooks, they says.
"The negative movements noted above illustrate this risk well."
In their first report to investors, the managers said HMF was estimated to be worth $70 million but, because of inadequacies in HMF's accounting systems, they couldn't accurately calculate its value until they had completed a reconciliation as at March 31, 2010.
In their latest report, the managers say their reconciliation indicates a $31 million shortfall between the actual value of the assets and investors' statements at that date.
"In our opinion, investors will suffer a considerable loss compared with what was shown on their statements" at March 31, 2010, they say.
The managers expect to "rescue" about $2 million in shares in the next month or so which are subject to claims from third parties and which aren't included in their current valuation.
The managers say they have billed HMF $680,507 between September 25 and January 31, which includes the costs of their advisers. They had previously billed HMF to September 24 for $603,471.
"It is important to note that in the past Mr (Allan) Hubbard would have charged a management fee during the last quarter of the year between 1% and 1.5% of the funds recorded on the statements of investors," the managers say. That would have been between $800,000 and $1.25 million but the statutory managers aren't charging a separate management fee.
The managers say they are working towards applying to the High Court, expected to be during the next six months, for an order to determine how to distribute HMF's assets to its investors.
The process could take several months and the earliest any form of distribution will happen will be in 2012.
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