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Web to unpick: Administrators

Just under $10 million is owed to financial advisers by LM Investment Management, a figure that is growing every day, its administrators say.

Wednesday, April 3rd 2013, 6:00AM 9 Comments

by Susan Edmunds

They addressed transtasman media via a phone conference last night.

FTI Consulting spokesman Justin Clark said it would be weeks, if not months, before the administrators completed a detailed report on whether any offences had been committed by LM.

The firm voluntarily called in administrators on March 19, when it became clear that it would not be able to meet its debt obligations.

But the debts are not huge. Aside from $9.9 million owed to investors, there is $1 million owed to employees and $13 million in funds management fees paid in advance.

LM Investment Management has charged quite high fund management fees, and two loans from LM’s Managed Performance Fund (MPF) to LM founder Peter Drake are believed to be being fingered as possible culprits for the company’s demise, although the administrators would not confirm that beyond saying they were investigating them.

On paper, LM Investment Management has $740 million in assets, ranging from cash, foreign currency, direct real property, commercial loans secured by first or second mortgages, and listed shares.

The MPF has $396.6 million in assets.

Clark said: “It’s an extremely large, complex web of transactions…. Cashflow in and out of funds is something we’re looking at.”

The loans in question are $17 million to Drake as a private individual, and $249 million to property development Madison Estate, which is owned by LM Investment Management.

There have been suggestions Madison, which is undergoing major earthworks, is not worth anything like that figure and an updated valuation has been requested, but not yet received.

Clark said the LM MPF was a second-ranked security behind Suncorp, which has a $19 million exposure it wants to be rid of.  He said the administrators were looking to refinance that debt to avoid receivership.

The MPF is in ASIC’s sights because it has been operating as an unregulated fund outside Australia’s Corporations Act. That means Australian retail investors cannot invest in it without complying with strict conditions.

The fund’s constitution, unlike those of regulated funds, says the trustee must resign if administrators are appointed. “Although LMIM remains currently the MPF trustee, in light of these concerns the administrators after consultation with ASIC have determined to make an application to the Supreme Court of Queensland to be appointed receivers of the assets of MPF.”

The administrators must file a report by July 25. Clark said they were going through every loan to ensure the impairment provisions were fair and reasonable. He said it was too early to estimate any returns to investors or creditors.

LM Admin is believed to have about $31 million in related party loans.

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Comments from our readers

On 3 April 2013 at 9:46 am david jansen said:
The insolvency experts were called in by LM even though the debts are not huge; $9.9m to investors, $1m to employees and $13m of fwd mngt fees paid in advance. This needs to be digested in the context that Mr Drake, according to the Sydney Morning Herald last week, took out personally in cash last year $25m. Imagine if Mr Drake only paid himself $1.1m last year - the investors could have back the money owed to them and they wouldn't be paying the broadly estimated $30k per day in insolvency fees.. In short it appears the decision was made last year to put investors last and to smack around the Funds unit price some more....
On 3 April 2013 at 12:45 pm david jansen said:
Thanks Bill, I was one of the guys that stuck around along with some others to get investors between 95 and 105 cents in the dollar back - lets see how long Drake sticks around. Are there no-bounds to your remarkable insight here!
On 3 April 2013 at 2:56 pm Bill said:
The fund virtually collapsed due to management fund selection.

Most people only got 60 cents because ComCom put the heat on the promoters to cough up.

And then some more due to some unusual FDR tax rules.

And some lucky ones got a little more due again to ComCom pressure.

I doubt that any of those extra amounts are due to anything that you did!

On 3 April 2013 at 6:09 pm John Milner said:
Bill it's time you moved on from this. David did stick around and faced the music. Unlike a number of advisers that refuse to this day to accept any portion of blame. I guess they were just innocent order takers and not advisers.
On 3 April 2013 at 9:46 pm Simon Burnett said:
“Thanks Bill, I was one of the guys that stuck around along with some others to get investors between 95 and 105 cents in the dollar back - lets see how long Drake sticks around. Are there no-bounds to your remarkable insight here!”

We have entered fairy tale territory here. Nobody at ING, including David Jansen, did anything to get the frozen funds investors any money back. The frozen funds group had to fight all the way to get any compensation. ANZ and ING mounted a massive cover up and avoided every situation where they might have had to answer questions (the Close-Up programme of March, 2009, for example)

As for between 95 cents and 105 cents—this is theoretical amount because the final settlement was wrapped in a set of assumptions that even the ComCom admitted might not apply across the board. I personally got back 60 per cent.

Why the cover up? Because ING had ignored all the warnings in a classic case of moral hazard (it had no skin in the game).

Even when the huge wave of downgradings began in July 2007, ING did nothing.

Then came August. Bear Stearns’ Sam Molinaro said, in a highly publicised remark, that the fixed-interest (bond) market had never been in a worse state in 22 years.

Central banks started pumping in money because belief in CDOs had vanished: credit stopped. All ING said was that (their favourite term) “losses were only on paper and would be crystallized” if investors pulled out.

Recovery would be there in another couple of months.

The BNP Paribas announced it was unable to value three CDO-based funds.

All this sent shock waves around the globe. ING did nothing. Did not warn anyone. ANZ pulled its millionaire investors out of both funds.

How was it that thousands of risk-averse bank account holders in the New Zealand suburbs ever get involved with a firm, ING, that, by its own admission, used a notorious asset manager called C-Bass, which sold CDO securities bristling with loans serviced by Litton Loan?

Litton Loan was bought by Goldman Sachs for one reason: Litton’s books were a bible of the worst of the worst subprime loans in the United States. Goldman Sachs knew what to do with those loans. It stuffed them into CDOs which is sold and then shorted.

You’ll all be able to read about it later this year.

On 4 April 2013 at 9:03 am bill said:
I hope advisers are not going to take commissions from LM - a fund where investors have received nothing for 4 years.

As far as ING, LM & Trilogy go, all three get a no confidence vote from me
On 5 April 2013 at 9:30 am Simon Burnett said:
I would be interested to know what David Jansen thinks about ING's association with C-Bass.
On 5 April 2013 at 8:43 pm Mr Dobolina said:
Here was me thinking this was an article on LM; silly me.

It wouldn't suprise me if I read the website in 25 years time and an adviser is still crying poor mouth about ING frozen funds because they didn't do any due diligence themselves.

It was your choice to take 60c Mr Burnett. Let it go buddy, life is too short to keep whining and crying about your poor investment choices.
On 8 April 2013 at 6:55 pm Simon Burnett said:

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