1st April 2009
Not all mortgage funds are frozen
You may have read in the Press recently reports about the current situation with regard to mortgage funds. Much of what has been written applies to the mortgage fund industry in general terms, but many of the comments do not apply to the La Trobe Australian Mortgage Fund. In this Investment News, we want to note the points on which we agree, but also highlight the key points of difference between the mortgage fund industry as a whole and our mortgage fund.
Some basic facts
There are some basic facts on which we can all agree:
- The mortgage fund sector manages about $17 billion in investors' funds.
- There are about 270,000 investors in mortgage funds, many of whom are retirees looking for capital stability and consistent income returns.
- Mortgage funds are now offering higher returns than deposit accounts. For example, La Trobe's Pooled Option is paying 6.95%1, net to investors.
- The mortgage fund sector plays a 'niche' role in the provision of finance to a wide range of borrowers, particularly small business and property developers, often offering greater flexibility to borrowers than the major banks.
But there are two (2) significant points of difference.
La Trobe's redemptions are not frozen
Many mortgages funds in Australia, including the largest players, froze redemptions during 2008 and many still have restrictions on investors withdrawing their funds. However, funds that froze redemptions at the peak of the financial crisis are now allowing unitholders to reclaim some of their money.
AMP and AXA are permitting unitholders to claim only around 5 per cent of their total investment.
AMP spokeswoman Lara Daniels said that the AMP Capital Enhanced Yield Fund did not have sufficient cash available to meet all redemption requests submitted by unitholders at the end of January. This was because the Fund's assets are tied up in long term infrastructure projects, which were less able to be converted into cash.
Data collated by Aviva Australia shows that the largest mortgage fund in Australia, the Challenger Howard Wholesale Mortgage Fund, has capped redemptions at 11.2 per cent of unitholders' investments.
The country's second largest mortgage fund, the Perpetual Monthly Income Fund, is permitting unitholders to redeem as much as 30 per cent of their capital.
Perpetual's head of income products Richard Brandweiner said his fund had suffered a net outflow of more than $100 million in recent times but was able to meet higher claims for redemptions because it had relatively high cash reserves.
However, we at La Trobe at no time froze redemptions from our Fund, and investors were, and still are, able to access their funds in accordance with their investments' withdrawal provisions.3
La Trobe is still lending
Recently, the Chief Executive of the Investment and Financial Services Association, Richard Gilbert noted that "mortgage trusts have been providing finance for small business and property developers for almost 40 years", but "essentially lending by mortgage trusts has almost dried up." This is because mortgage funds have been preserving cash, in order to try and meet redemptions.
However, we at La Trobe are still receiving applications for finance from borrowers with quality proposals, across a range of sectors and geographical locations, and we continue to lend from both our mortgage fund and other long-term funding lines.
We are also receiving and processing applications from investors in volumes higher than during 2008, on our ordinary investment terms. All of our investors are enjoying typical investment performance, allowing them to benefit from the premium returns presently available in the market place as a result of the shortage of functioning competitors.
It is important in today's economic environment to look closely at the news of the day, and make sure that the comments apply to your particular circumstances.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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