26th October 2012

Dear Investor,

$1 billion Banksia group collapse

The recent appointment of McGrathNicol as receivers of the troubled $1billion Banksia Group based in Kyabram, Victoria has again brought to the investing public’s attention the risks that can be associated with some debenture investment schemes. Recent losses now in the debenture sector alone exceed $1.5billion (excluding Banksia) after the failure of other debenture schemes such as ACR, Fincorp, Bridgecorp, Provident Capital and others. The unique risks associated with debenture investments have been well documented by the national regulator the Australian Securities & Investments Commission (‘ASIC’) in the past.

A question you may ask is... what makes La Trobe Financial different?

La Trobe Financial is a business built on conservatism and quality asset selection for its investors, both retail and some of the biggest institutional investors in Australia and overseas. La Trobe Financial has been around for 60 years and has invested and managed on behalf of others over $10billion. However most importantly, and unlike the recent sad news for Banksia investors, La Trobe Financial is not a debenture investment scheme and provides investors with a vastly different legal investment structure by way of security and underlying risk profile when compared with the collapsed Banksia’s debenture scheme.

Some of the important differences for investors are:

  1. Banksia operated two investment arms. First, a standard mortgage Fund operation with circa $300m, and secondly, a debenture company with $700m of investor funds. It is the second entity to which the independent trustee had requested the appointment of a receiver – McGrathNicol.

  2. We have no reason to believe any of the assets in the standard mortgage Fund are in jeopardy. This is confirmed by Banksia’s own media release.

  3. Unlike La Trobe Financial’s processes, debenture investments are loans by investors to a company without direct collateral security. The company issuing the debenture is liable to repay a specified amount but the debenture is not directly secured over a particular asset. Investors in debentures are therefore relying upon a promise by the company issuing the debenture to repay the debt. The strength of that promise relies on the financial solvency of the company itself and its ability to recover from borrowers. Debenture holders rank with all other general creditors of the company and are subordinated behind secured company debt. This is very different from the La Trobe Australian Mortgage Fund ("La Trobe Fund"). Under the La Trobe structure, investments are held in trust for the sole benefit of investors, who are members of the La Trobe Fund. The investments are secured against the underlying properties through mortgages registered on the property title. Therefore, the financial solvency of La Trobe Financial has no direct bearing on the security of an investment. Accordingly, the security for investments in the La Trobe Fund is the actual mortgage secured against real property and not a corporate guarantee.

  4. Banksia also appears to have operated at a different end of the risk spectrum from La Trobe Financial. For Banksia to offer debentures returning above 10%, it was clearly lending to borrowers prepared to assume higher risk. The mortgage lending practices undertaken by La Trobe Financial are inherently different from that of Banksia. La Trobe Financial’s primary target market for asset origination is the smaller residential loan asset market. La Trobe Financial also has conservative loan to valuation practices and maximum loan sizes while ensuring our La Trobe Pooled Mortgage Option carries broad loan diversification by sector and geographic location. The La Trobe Fund is among the most diversified in Australia. Banksia’s concentration risk was primarily in non residential loans and a large exposure to vacant development land. The La Trobe Fund has an average loan size of $316,000 compared with Banksia’s reported average loan size of $2.8m.

  5. In regard to solvency, it appears that Banksia had been operating with a net asset deficiency for some period of time before the appointment of the independent receiver on Thursday 25 October. La Trobe Financial has no such deficiency. La Trobe Financial has over 60 years investment experience, and La Trobe Financial’s Pooled Mortgages Option is the highest rated mortgage fund in Australia by Zenith Partners; SQM Research and Lonsec. Moreover La Trobe Financial’s Pooled Mortgages Option has a proven history of performance with no loss of investor capital or interest since inception.

  6. The Banksia loan book was allowed to deteriorate to the extent that arrears exceeded industry acceptable standards and an independent review for their Board of the loan portfolio established loan losses of $30m which exceeded net equity in the group of $24m.

Ultimately it is these differentiating factors which provide La Trobe Financial investors with greater certainty and understanding in relation to investments and greater certainty of return.


Best regards,
Chris Andrews




The following award and ratings were given to the Pooled Mortgage Option within the La Trobe Financial Mortgage Fund

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Randal Williams
Chief Wealth Management Officer

t  +61 3 8610 2831
e  rwilliams@latrobefinancial.com.au

Chris
Chris Andrews
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Head of Funds Management
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Daryl Hill
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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 145 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. The PDS is available on our website www.latrobefinancial.com.au or by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
* The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Past performance is no guarantee of future performance. Investors risk losing some or all of their principal investment. The investment is not a bank deposit.
^ These rates represent the average rates payable on the mortgage portfolio of each Option and may not be indicative of the returns on the investment selections of individual investments. The Investment Return Benchmark is a compounded return. Returns for the Investment Options have not been compounded.
- Withdrawal rights are subject to liquidity and may be delayed or suspended.
- The award and ratings were given to the Pooled Mortgages Option within the La Trobe Australian Mortgage Fund.
The rating is only one factor to be taken into account in deciding to invest.
1. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit www.latrobefinancial.com.au The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
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