Anthony Klan | October 22, 2008
THREE more mortgage funds scrambled to freeze redemptions yesterday as unitholders rushed to the exits.
The financial crisis has seen more than $14 billion in funds -- held by almost 100,000 investors -- thrown into limbo.
The East Coast Mortgage Trust, Northern Investment Trust Fund and the Richmond Mortgage Fund -- holding a combined $660 million -- all froze redemptions yesterday as spooked investors attempted to liquidate holdings.
The latest freezes followed an announcement yesterday by the giant Challenger Howard Mortgage Fund that it had frozen $2.8 billion of funds, claiming the federal Government's pledge to guarantee bank deposits had exacerbated a run on redemptions.
Northern Investment Trust Fund manager Greg Anderson said investments in the $325 million fund would be frozen for an initial 90 days.
``The federal Government's October 12 move to guarantee deposits only in banks and building societies created some concern among investors,'' he said.
``But the final straw was the announcement that Challenger Howard has suspended redemptions.
``That has created a lot of concern among our investors.''
Richmond Mortgage Fund managing director Ian Cardow confirmed that the $90 million fund had been frozen following a spike in redemption applications, but declined to comment further.
Other mortgage funds apparently dived for cover yesterday.
Executives of Gold Coast-based $640 million mortgage fund group LM Investments -- and the management behind the $260 million Shakespeare Haney Premium Income Fund -- failed to return numerous calls.
A spokeswoman for fellow Gold Coast mortgage fund Equititrust, which holds about $300 million of ordinary investors' funds, said managing director Mark McIvor ``won't take your call''.
Investment and Financial Services Association chief executive Richard Gilbert said the group would meet with treasury officials in Canberra today to lobby for government support to ``reassure investors'' in the mortgage fund and property fund sectors.
``We don't think the Government is fully apprised of the real issues, which is why we are going to Canberra,'' Mr Gilbert told The Australian.
``Liquidity is at its lowest ebb in 10 years and we need to see some cut through.''
He would not disclose the nature of IFSA's suggestions ahead of today's meeting.
``We intend on discussing avenues to assuage investors' concerns,'' Mr Gilbert said.
Property Investment Research director Dugald Higgins said 24 mortgage and property funds, holding $14.4 billion of funds on behalf of 93,000 investors, had now frozen redemptions amid the crunch.
Mr Higgins said while the federal Government's move to secure bank deposits had exacerbated the pains for mortgage funds, the sector had faced serious problems well before this month's announcement.
He said many high-yielding funds on-lent money to property developers who were struggling to meet repayments in the moribund market.
``The other major component denting confidence has been the number of major collapses in the property debenture sector,'' Mr Higgins said.
He said that although many mortgage funds were offering annual returns at around 6 to 7 per cent -- similar to or less than risk-free bank deposits -- banks were not always the best option.
Mr Higgins said mortgage fund loans were typically made at fixed rates over several years, which meant investors shared in returns on loans made at earlier interest rates. The falling cash rate meant some mortgage trusts would become far more attractive to investors, depending on their risk-profile.
``Quite often superannuation funds like to invest in conservative mortgage funds because they have a very predictable income stream, even if it is a bit lower (than other investments),'' Mr Higgins said.
Challenger announced it would freeze redemptions on the $2.8 billion Challenger Howard Mortgage Fund but continue making distribution payments.
A spokeswoman said the Government's bank deposit guarantee had sparked the freeze, but that redemptions had been rising since January.
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