RAW DATA: The Shocking Untold Truth About Aorangi Securities, Te Tua Trust and HMF

The Stand by Hubbard group's statement

Click here to read the report (PDF 96kb)

Grant Thorntons’ ‘investigation’ into Aorangi Securities, the Te Tua Trust and Hubbard Managed Funds (HMF) is sadly lacking.

Allan Hubbard has been instructed not to discuss the details of these entities before any announcement by the Serious Fraud Office. He is frustrated at the mis-information and assumptions being presented to the media as if they are facts. They are not.

Despite having explained the details to Grant Thornton with figures, it seems they still don’t understand the true state of affairs as Allan Hubbard knows it to be.

For 3 months he has told the same story yet Grant Thorntons’ appear to remain confused.

Grant Thorntons’ have stated that Aorangi and the Trusts in Statutory Management were “An intricate and complex intermingling of affairs” and that investors were exposed to extremely high risks.

Allan and Jean Hubbard have subordinated their $51Million interest to rank behind
investors funds in Aorangi so their $51Million has to be lost before any investors funds are at risk.

Aorangi Securities
Aorangi has been accused of not having a prospectus and for receiving on-call funds which were lent out over the long term.

The fact is that Aorangi has never solicited funds from the general public, funds were only received from professional investors and business associates so arguably there was no requirement to issue a prospectus.

Up until Statutory Management, Aorangi always had an adequate cash buffer to pay it’s interest payments when they became due, and Mr Hubbard was well known to be in the habit of paying them a week before they were due.

As at the 20th June when Statutory Management was imposed Aorangi had approximately $3Million in cash in the bank sufficient to pay the investors quarterly interest payments.

None of Grant Thorntons’ reports have accounted for these funds. Theses funds are in addition to the recently identified $2.25Million bank balance in the Forresters Nominee Company bank account.

Grant Thornton have not yet accounted to Aorangi investors for their expenses and costs incurred tod date. The question must be asked. Why are Grant Thornton not disclosing their costs?

After Mr Hubbard was first informed of the anonymous complaint, allegedly by one Aorangi investor, he was in discussions with the Securities Commission for several months. At their request he had agreed to issue a prospectus and offer refunds or the opportunity to reinvest to all Aorangi investors.

Grant Thornton have stated ”a lack of paperwork is impeding progress”.
When the Statutory Management was imposed Mr Hubbard was in the process of preparing a prospectus and had recently sent mortgage documentation, for the existing Aorangi loans, to solicitors to re-document the mortgages for terms from 1 to 3 years to comply with the proposed prospectus. Grant Thornton knew that Allan was in the process of re-documenting loans yet their interpretation of this action is “a lack of paperwork”.

Allan was planning to raise adequate funds on matching terms of 1 to 3 years so all loans would be funded by investments on the same terms as the loans.

This would have ensured perfect ‘match funding’, a practice even Banks are unable to achieve due to their investment terms being typically up to 10 years whilst mortgage terms are as long as 25 years.

Allan Hubbard has never used Aorangi funds to lend to the Te Tua Trust, as purported by Grant Thornton in their second Statutory Managers report “Te Tua has been advanced approximately $24 million by Aorangi”.

When Aorangi was placed in Statutory Management Grant Thornton were completely unaware of Hubbard Managed Funds, as they only found out when they visited Allan to advise him that Aorangi was in Statutory Management.

Te Tua Trust
For 40 years, until 2009, the Te Tua Trust was privately owned, by Allan and Jean
Hubbard, and operated as a charity providing interest free loans to farmers and businesspeople starting out their business life. These loans were typically repayable in equal instalments over a five to seven year period, sometimes with initial repayment holidays of one to two years to help borrowers to gain a sound base to grow from. Te Tua had also successfully invested in commercial properties and had made $15M capital profits from those investments which was retained in Te Tua.

In contrast to Grant Thorntons’ opinion that Aorangi advanced $24Million to Te Tua, the reality is that Mr and Mrs Hubbard voluntarily introduced the Te Tua assets to Aorangi Securities in 2009. This was specifically to strengthen the Aorangi balance sheet, a decision made entirely at Allans own discretion. The benefit to Aorangi was primarily the Te Tua Trust cash flow of approximately $200,000 per month of principal repayments,which Aorangi was receiving prior to the Statutory Management.

The $40 million capital invested in Te Tua was by way of $15Million of retained capital profits from it’s former commercial property investments with the additional $25 million in capital being a loan to Te Tua from Allan Hubbards own funds. This was prior to Allan voluntarily introducing Te Tua into Aorangi. There was never any investment or loan by Aorangi to Te Tua.

Hubbard Managed Funds (HMF)
Established nearly a decade ago HMF has never publicly advertised or sought funds from investors. Typically it was invested in by clients with surplus funds as a long term investment strategy. The Hubbards introduced approximately $6Million as working capital.

Allan Hubbard was often offered share allocations in newly floated listed and unlisted companies he would use a portion of this working capital to purchase shares. These shares were then allocated as and when needed by clients wishing to invest further funds in HMF at their current market value at the time of allocation.

Total clients funds invested in HMF were $21Million and HMFs’ combined client’s portfolio’s value as at March 2010 was estimated at $80Million. In March 2010, HMF had a surplus of approximately $6Million which included unallocated shares, representing the Hubbards own introduced working capital.

HMF has never operated as a ‘pool fund’ as each client had their own allocated portfolio of shares. Grant Thornton have never requested HMF clients folders of individual portfolios.

Clients received annual statements as most investors are long term investors. If any client wished to realise their investment then only their allocated shares would be sold at current market value at the time.

Since March 2010 HMF portfolio’s have performed well. One investor recently requested the balance of their portfolio, which stood at approximately $1Million in March 2010, and the value had increased by $250,000 to $1,250,000.

Allan Hubbard was charging a modest 1% to 1.5% p.a. to manage HMF’s portfolios.

Price Waterhouse Coopers had recently reviewed the HMF portfolios performance since it’s inception and reported that HMF was one of the best performing managed funds, in New Zealand over the last 10 years, if not the best. The PWC report has been released to Grant Thornton and it starkly contrasts Grant Thorntons’ opinion. A portion of HMF’s portfolios included unlisted shares which do not have an easily attributable value and is often a matter of subjective opinion by the party placing a value on them. In Grant Thorntons’ opinion their ‘valuation’ of the unlisted shares appears to have led them to believe that a portion of HMF funds are missing, when in fact there are no missing funds.

Grant Thornton have applied a ‘cash’ basis for accounting rather than the, widely adopted standard practice, of ‘accrual’ accounting which is what Allan Hubbard had been using. This has resulted in a significant difference between Grant Thorntons’ calculations and PWC’s.

As at the date of the third Statutory Managers report Grant Thornton misreported that HMF owned $500,000 of Southbury Group notes advanced to South Canterbury Finance. In fact the government had already paid out $534,000 under the government guarantee.

Many of the investors in both Aorangi and HMF are extremely disturbed by the significant costs being incurred, at their expense, and the Statutory Management process that is clearly resulting in much confusion. Their wish is to have Allan Hubbard back at the helm, he has an impeccable record to date.