Investors in Allan Hubbard's Aorangi Securities could receive an initial capital repayment of three cents in the dollar later this month but it could take years before their final position is known.The outlook for investors in Hubbard Management Funds (HM
Investors in Allan Hubbard’s Aorangi Securities could receive an initial capital repayment of three cents in the dollar later this month but it could take years before their final position is known.
The outlook for investors in Hubbard Management Funds (HMF) is even less certain with recent gains in the portfolio value being offset by likely losses caused by the receivership of South Canterbury Finance.
Aorangi received $96 million from investors and $34 million of equity from Mr Hubbard. It invested $130 million into farms, the Te Tua Trust and a range of other commercial businesses.
HMF has deposits of about $82 million, which is invested in public company shares, venture capital funds and unlisted companies.
Statutory managers from Grant Thornton released their third report on the Hubbard entities today.
There is some good news:
• Mr Hubbard has offered to subordinate his own interests in Aorangi and make up any losses to investors,
• a number of Aorangi assets appear to be saleable,
• HMF’s cash position has improved with the identification of $2.25 million in a bank account in the name of Forresters, also in statutory management, and
• Te Tua charitable Trust is to make an immediate payment of $600,000 to Aorangi.
If certain assets can be sold, the statutory managers are hopeful of distributing a further 20c in the dollar to Aorangi investors by the middle of next year.
However, the recovery process is subject to a degree of uncertainty.
“We have had initial draft valuation reports on the assets that Aorangi owns or has security over. The specific impact of these valuations on Aorangi is being assessed," Grant Thornton’s Richard Simpson said.
"Until this assessment is completed we will not be able to provide an assessment of the likely estimated returns to investors.
“The assessment of the Aorangi investment portfolio requires further loan and property value review work. Possible losses from Southbury and Te Tua could total $25 million.
“Whether Aorangi investors will recover all their investment will depend on the loan and asset sale process, and the ultimate level of money Mr Hubbard has in Aorangi.”
Finalising the distributions could take a number of years, Mr Simpson said.
The timing of payments for HMF investors was still unclear.
Investors were previously advised that their return would be at least 25% less than the value in the statements prepared by Mr Hubbard as at March 31, 2010.
The receivership of South Canterbury Finance has had a further adverse effect on the fund value, which is currently placed at $49 million.
HMF's related party investments totaled $19.57 million as at March 31. These included investments in Aorangi ($7.89 million), and South Canterbury Finance shareholder Southbury Group ($10.1 million).
The statutory managers estimate potential losses from related party investments of $18.57 million.
Grant Thornton has appointed independent investment advisers and sharebrokers to provide investment advice and assistance in managing the share portfolio of HMF.
“We have been advised that the portfolio appears to have been constructed on a high risk – high return philosophy and until we are able to sell certain investments there is a risk of loss.”
Currently 24% of the current portfolio value is in unlisted entities, while Australia-listed investments outside the ASX200 represent almost 24% of the portfolio.
A large percentage of the listed portfolio is made up of smaller listed company investments which “may be difficult to sell because of limited demand.”
Approximately 32% of the portfolio is invested in resource and exploration companies.
Mr Simpson said there were important legal questions to be considered as the statutory managers, along with their professional investment advisers, develop strategies to ensure HMF is carefully wound up in a manner which will maximise the returns to investors whilst reducing the risk in the portfolio.
“The nature of the fund is not clear and although investors may consider they had an individualised portfolio, features of the underlying management of the fund suggest investors’ funds were pooled.
“We are likely to be seeking the guidance of the court as to the nature of HMF and the appropriate method for the ultimate distribution of the sale proceeds of HMF assets to investors. This entails a large amount of preparatory and work by us and our legal team and the subsequent Court process is likely to take some time.
The costs of this will be significant and we will attempt to find other options.”
“There are still many issues to work through and we will have a further progress report to the investors at the end of October 2010,” Mr Simpson said.
