Mortgage funds hit by collapses fallout
Mortgage funds have been undeservedly drawn into the negative publicity surrounding the string of failed property investments and suffered losses as a result, according to Australian Unity head of mortgages, funds management, Roy Prasad.
His claims were prompted by a recent Standard & Poor’s report, which revealed that the mortgage fund sector had lost $300 million in net retail fund outflows in the last 12 months, and partly attributed this to the “contagion effect resulting from the collapse of Westpoint, Fincorp, Estate and Bridgecorp groups”.
“Certainly, when the first one went belly-up (Westpoint) there was a lot of negative media,” Prasad said.
“I think there was a misconception in the marketplace that Westpoint was somehow a mortgage fund.
“Sure, they were borrowing on the open market in terms of first mortgages and they were also attracting investors by way of debenture offers, but none of the four entities that have collapsed to date can be described as mortgage funds — they were property developers that were raising retail investments by way of issuing debentures in the marketplace.”
Nonetheless, Prasad believes the mortgage fund sector was negatively impacted by the collapses.
“You can’t escape the fact it has slowed down the level of flows into the sector, and it’s probably impacted more on the high yield funds than conventional mortgage funds,” he said.
“It certainly caused us to sit-up and take notice and watch our portfolios very closely in terms of what the impact would be with advisers and potential large redemptions.”
Referring to the sector as a whole, Calliva chief executive Vince Scully believes mortgage funds were “very severely negatively impacted” by the collapses.
“Firstly, inflows have just dried up and, secondly, many funds have experienced significant outflows,” he said.
“Given that a lot of the assets are long-term loans and the liabilities are short-term, or close to at call units, a run for the door has got some potential to cause big problems.
“This is part of the way both ASIC (AustralianSecurities and Investments Commission) and the media have handled this — they have sort of said all high return mortgage funds are bad without looking at the underlying issue.”
On a positive note though, Prasad said this had forced the sector to re-educate the marketplace on strategies for avoiding risky investments.
Recommended for you
Numbers are in for 2024, with Wealth Data confirming how many advisers left during the calendar year and which business models saw the largest growth in terms of new licensees.
Praemium has seen its highest net inflows in over two years for Q2 FY25 as its Powerwrap platform returns to inflows after five consecutive quarterly outflows.
Insignia Financial has announced total quarterly net inflows of $2.3 billion as well as a third bid from Bain Capital.
As DBFO reforms around fees take effect, Adviser Ratings explores how advice businesses can adopt more transparent and client-centric pricing models in 2025.
