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Investors face 40% losses in Hubbard Management Funds

Investors in Hubbard Management Funds (HMF) are on average likely to get back 60% of what they thought their investment was worth, according to the fourth statutory managers' report out today.While Allan Hubbard's investment manag

Duncan Bridgeman
Fri, 29 Oct 2010

Investors in Hubbard Management Funds (HMF) are on average likely to get back 60% of what they thought their investment was worth, according to the fourth statutory managers' report out today.

While Allan Hubbard’s investment management business is being actively managed to try and preserve value, recent events related to the receivership of South Canterbury Finance has had a deteriorating effect on the fund’s value.

Documents handed over as at March 31 reported HMF’s total value at $82 million at that date.

However, as disclosed in previous reports, a review of the fund indicated a shortfall of some $13 million of investments and almost $6 million of cash. There were also excess shares valued at $8 million.

The report notes that assessing the fund’s value has been complicated by related party exposures and the pledging of assets to other parties.

“The quality of the reporting by Mr Hubbard in the statements issued to investors is of serious concern to us,” Richard Simpson and Trevor Thornton said.

“What is clear is that investors will not receive the value shown on the March 2010 statements issued by Mr Hubbard. On average, it appears likely that investors will receive approximately 60% of this amount. The final outcome will depend on the allocation method which may need to be approved by the court.”

As at September 30 the HMF assets totalled about $50 million, they said.

A small number of shares comprising about 5% of the value of the portfolio have been sold. These shares were in private equity and venture capital funds that made further calls on investors.

“We are committed to avoiding any action which will negatively impact HMF. We will not be selling assets at discounted prices.”

Repayments to investors

The statutory managers have laid out five options for allocating HMF’s assets between investors. (see page 14 of fourth report)

One of the options is to try and get the agreement of all investors as to how to divide HMF assets.

“We think there is very little chance that we can get 300 investors to agree to any solution, as every option that has been proposed appears to have winners and losers.”

Grant Thornton said its legal advice suggests that the court should rule on the fairest method.

Pooled Funds
The statutory managers believe HMF operated as a pool whereby:

* The individual portfolios as represented by the annual investor statements do not match the assets actually held, including over-allocated and unallocated shares and shares and investments which do not exist;

• The investor statements contain prior period adjustments totalling over $4 million (which are corrections for errors in the previous year’s statements) which have been made on a proportionate basis, which is inconsistent with individual portfolios;

• In almost all cases, assets were held by Hubbard Churcher Trust Management Limited or other entities on behalf of HMF, rather than on behalf of individual investors;

•There appears to be no correlation between deposits by investors, asset purchases and allocation of those assets, in terms of timing of transactions;

• Assets purchased being allocated retrospectively to investors rather than at the time of the acquisition by HMF;

• There are examples of assets being recorded as purchased and sold on the statements where the assets did not exist.

Costly business
Since their appointment in June the statutory managers costs for HMF has amounted to $603,471 including GST.

Grant Thornton noted that “normally Mr Hubbard would make a management charge to all investors about now based on the statement balance of each investor as at the previous 31 March. “It is our estimate that this charge, based on his past practice, would have been in the range of $1.0 million to $1.2 million annually. This charge will not be made while HMF is under statutory management.”

 

Duncan Bridgeman
Fri, 29 Oct 2010
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Investors face 40% losses in Hubbard Management Funds
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