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Managed fund mayhem muted

Friday, October 31st 2008, 9:28AM 1 Comment

by Philip Macalister

A week ago mayhem started to break out in the Australian savings industry funds with fund after fund freezing redemptions. Parts of the industry, particularly mortgage and property funds were running scared that investors would withdraw their money and place it with institutions and funds which are covered by the guarantee scheme. Watching the situation unfold lead me to think that the same thing would happen here and there could be disastrous consequences for New Zealand’s managed funds industry. So far only one player has followed suit – AXA. So it seems with things going quiet that maybe the flow of capital won’t be as significant as in Australia. But it’s worth noting New Zealand’s mortgage fund sector is quite small and many of the funds have already stopped redemptions. The two groups which look most vulnerable are the funds run by the regional groups linked into law firms and possibly the banks. Maybe one of the reasons the flow hasn’t happened is that Treasury has only just started approving New Zealand institutions for its scheme. We are keeping a list of approved institutions here and will update it daily. What worries me is that there could still be a massive flow of capital from quality, non-guaranteed income securities to lower quality, guaranteed products. Already some advisers, well one in particular, is encouraging people to go for the highest returns they can find in finance companies. My issue with this is sure the return is guaranteed, but what happens if the company does get into trouble and needs to be bailed out under the scheme? I bet it won’t be like Lotto where you go into the shop on the day after the draw and get your cheque. No doubt the government wait for a failed company to go through the process of winding up before any government cheque is written and history shows us these things take some time. The other point, and one being argued strongly by some in the managed funds sector, is that there should be some look-through provision in the guarantee scheme so funds are covered on a pro-rata basis based on how much of their funds are in government securities. For instance if a retail PIE is invested 30% in government guaranteed securities and 70% in other securities, then there should be a “look through” that allows the retail PIE investors to benefit from the 30% coverage. Apparently Finance Minister Michael Cullen will make some comment on this over the weekend. Let’s hope it is a sensible decision.
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Comments from our readers

On 7 November 2008 at 12:36 pm Peter said:
You cannot be half-pregnant. Either a fund is in or it is not in. The pro-rata would be open for abuse and manipulation.
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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 ▼7.74 ▼7.35 ▼6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

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