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
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
