Attention shifts to credit funds

As I mentioned in today’s Weekly Wrap the indefinite closure of ING’s credit funds is likely to galvanise attention onto this sector of the market and away from finance companies (unless we have another big one fall over). All these credit products have been having trouble for a while and what is possibly not recognised is the amount of money in these products, or the size of the hits being taken. The list of firms who played in this space is lengthy and filled with some well-respected brands. Besides ING, there is Macquarie, NZ Funds, Absolute Capital, Forsyth Barr and Basis Capital. In total, there is many hundreds of millions of dollars. Up until now the status of the listed funds such as Macquarie’s Fortress, Absolute Capital’s PINS funds and others, has been apparent. The ING announcement this week brings the unlisted offerings into the light. One comment made to me yesterday was worrying. It was from someone with a quasi-finance company type product, and he said to the public all these things look the same. That is, the public doesn’t make much of a distinction between credit funds and finance companies. That doesn’t surprise me as it had been clear for sometime than many of these credit funds were sold as alternatives to finance companies and in many cases term deposits. In the early days many stories were told that ANZ had been selling credit funds to customers who wanted term deposits. This is a worrying story that has been sitting below the surface for some time now. In reading today’s Business Herald it is clear that the story will gain prominence. Judging from the mainstream media reports, the credit fund issues maybe dealt with in the same manner as finance companies. If there is a plus to this, this is it. I imagine most of the money that went into credit funds was adviser-directed. Consequently, the client should have a well-diversified portfolio and credit funds will only have a small allocation, as opposed to the horror stories we have heard of punters having all their money spread across three or four of the worst finance companies. Let’s hope I’m right on that!