KEY POINTS:
Finance Minister Michael Cullen expects some managed funds to be covered by a deposit guarantee scheme, but says all such schemes are "fraught with difficulties at the margin".
Yesterday AXA New Zealand suspended three mortgage funds for 30 days, with combined investments of $225m. That took to more than $1 billion the total amount frozen by various companies in mortgage trusts in this country.
AXA said it was taking its action ahead of an expected increase in redemptions from funds following the announcement of the deposit guarantee scheme, from which it appeared most managed funds would be excluded.
Today, AXA New Zealand chief executive Ralph Stewart said he wanted to see mortgage investments, such as AXA's, covered by a guarantee.
The deposit scheme, depending on nature of investment vehicle, was treating underlying assets differently, he told Radio New Zealand.
For example, a finance company might be able to access a range of assets, including mortgages, and receive a guarantee, but a managed fund did not have that opportunity for a mortgage asset.
Cullen said the nature of mortgage funds would determine whether they would be covered by the guarantee scheme.
Some would, but the Government could not end up guaranteeing investments which, by their nature went up and down in value.
"We don't want, obviously, to collapse the managed funds industry. We will look at whatever measures are sensible to avoid that," he told Radio NZ.
The Reserve Bank and Treasury would continue to talk through issues with the managed funds, and the scheme would be monitored.
"In my view guarantee schemes are not desirable. It's one of those classic situations, if everybody else is doing it you have no choice but to do it, but you are going to end up with difficulties at the margin," Cullen said.
He was not sure all of the problems at the margin could be effectively sorted out.
Cullen also indicated again that an announcement on a wholesale deposit guarantee scheme for banks could be made this weekend.
Treasury and Reserve Bank officials were talking to various elements in the financial sector, and he was expecting a report late today or early tomorrow, after which decisions would be made, he said.
"Probably best to do this sometime over the weekend, while the markets are closed."
-NZPA
