Kiwi investors' $140m revolt against Aussie fund manager
New Zealand investors are leading a call to replace the Surfers Paradise-headquartered manager of a $A418 million mortgage fund.
Disgruntled investors in so-called wholesale and currency funds managed by LM Investment Management will vote on November 1 on whether to replace LM with rival fund manager Trilogy.
Figures provided by Trilogy show 2750 New Zealanders have put money into the two LM funds, with an average investment of about $A40,000 – a total of more than $A110 million, or almost $NZ140 million at today's currency exchange rate.
LM, founded and run by Kiwi-born Peter Drake, manages funds of more than $A3 billion.
LM's main fund – which has three feeder funds, including the wholesale and currency funds – has been frozen for three years and the units' value has declined 27%, Trilogy says.
Mr Drake's fund lent predominantly to Gold Coast developers, who have been hit by the global financial crisis and Trilogy says 89% of the loans are in arrears or default.
Trilogy, which is paying for the investors' meeting in Sydney next month, also accuses LM of charging "extraordinary" fees and of breaching ASIC regulations because it has not updated its asset position in more than a year.
Trilogy claims investors are also concerned about alleged related-party lending between LM funds.
However, Mr Drake, LM's chief executive, says in a statement Trilogy's "hostile" takeover attempt is based on inaccurate and misleading information and is not in the best interests of investors.
He says the main fund was closed in 2009 because of the financial crisis – not bad or poor performing loans – and the company has a solid sale campaign "with a number of large transactions due to settle towards the end of the year".
LM is discussing its fund strategy and "comprehensive investor information" with ASIC, he says, and fees for its First Mortgage Income Fund are "historically low".
"LM believes that it is on the strength of very minimal support that Trilogy embarks on this campaign."
Investment eroded by fees
Trilogy's Brisbane-based managing director Philip Ryan told NBR ONLINE LM's investors want out and they do not want to see their money "effectively evaporate" because of LM's fees.
"The only reason we're involved is that investors in the major feeder funds have come to us and said we're tired of the fees.
"When you aggregate the fees for the main fund and the fees for each feeder fund it comes close to 5%, which is well above the industry average, and that's on an asset base that is actually declining," Mr Ryan alleges.
"The final accounts for this year haven't come out or haven't been released yet and everyone, of course, is scared that there's going to be further impairments."
If successful, Trilogy stands to make millions of dollars from its 1.5% fee on the main fund, though Mr Ryan says it will be on a declining pot, as the intention is for an "orderly" wind-down.
Two Australian institutions – which Mr Ryan would not name – are leading the revolt in the wholesale fund, while a group of Kiwi investors in the currency fund are calling for LM's replacement.
David Jansen, a New Zealand-based financial consultant for Trilogy, says the New Zealand feeder fund, known as the LM Currency Protected Australian Income Fund, is now thought to be worth about $90 million.
He says Kiwis were sold investments in the funds by financial advisers four or five years ago.
In 2009, Trilogy took over management of failed Brisbane property investor City Pacific's first mortgage fund.
Earlier this year, Trilogy took a lawsuit against City Pacific directors for alleged "unreasonable" loans to developers. A hearing date is yet to be set.