LM Investment Management, which entered voluntary administration in March this year, ran a collection of funds which invested in the Australian property market, either by buying property and land for development directly, or by providing mortgages to developers.
Due to a fall in property prices over the past few years, the value of the underlying investments within the funds has fallen significantly.
The funds managed by LMIM were the: LM Australian Structured Product Fund, the LM First Mortgage Income Fund, LM Currency Protected Australian Income Fund, LM Institutional Currency protected Income Fund, LM Australian Income Fund, LM Managed Performance Fund and LM Cash performance Fund.
A number of these funds were sold widely throughout the world, in particular the First Mortgage Income Fund (FMIF), and its feeder funds the Currency Protected Australian Income Fund and the Institutional Currency Protected Australian Income Fund, and the Managed Performance Fund (MPF).
The advisers who visited Australia earlier this month were representatives from Magellan, based in Tokyo, Financial Partners, based in Hong Kong and Mondial, based in Dubai.
In a summary of the report, a copy of which was passed to International Adviser by an investor, the advisers said “the position of the funds is severe and will likely result in very significant devaluations”.
During its seven day visit, the adviser team said it had “extensive meetings” with all relevant parties. This includes the voluntary administrator (FTI) for LMIM and fund manager for the FMIF (and other smaller funds), the fund manager for MPF (KordaMentha), the Australian Securities and Investment Commission and the remaining former directors of LMIM.
In addition, the advisers met with SunCorp – the largest individual lender to the MPF and the legal counsel to the Adviser’s Committee for Investors – a new body being established to represent the views of investors.
Dramatic decrease in value
Outlining the “core issues” the adviser delegation said: “All properties have decreased in value, some quite dramatically and are not being developed (completed and sold) due to a lack of liquidity. Thus true asset values are far lower than expected and reported. The reported values also include interest that is either not paid or paid through a further loan (generally from the second mortgage holder).”
Breaking down the specific issues relating to two of the funds, the group said investors in the FMIF can expect the properties held to be sold at market prices, with investors receiving “regular payouts of lower than expected amounts due to market decline”.
The MPF is more concerning, with more than half of the value of the fund tied up in a development known as Maddison. The Maddison Estate was intended to be developed as a 108 hectare residential community development, however nothing has been built. Worse still SunCorp has a A$20m first mortgage and corporate charge secured against the property which is due for repayment on 30 June. MPF is unable to meet this obligation and therefore SunCorp may auction the property.
There are further similar investments within the MPF, although the report added that "any return to MPF investors is dependent on the outcome of the Maddison Estate project".
