KEY POINTS:
A local subsidiary of global financial giant AXA, Mortgage Backed Bonds, has suspended trading in wholesale holdings in its fund, as the run on mortgage backed investments continues apace.
This AXA freeze only affects its big institutional investors, those with more than $1 million invested, who collectively have $117 million in the fund. While smaller investors are not yet affected, they have been warned that if conditions worsen, they too may have their money ($112 million) frozen.
AXA says the suspension is a "precautionary measure" to preserve overall fund liquidity and it intends to have it in place for at least 90 days.
Income distributions will continue to be paid to all investors in the fund, both wholesale and retail.
The AXA freeze comes after AMP Capital New Zealand said last week it was suspending redemptions and won't be accepting any new applications into one of its property funds.
This in turn came just days after the Guardian Trust suspended one of its mortgage funds, first setting off fears of a wider run on such investment vehicles.
The AMP fund had about $419m under investment, with about 2900 AMP retail investors involved.
AXA NZ chief executive Ralph Stewart said this "partial suspension" was being done to support fund liquidity and was no reflection on the quality of the fund.
"The Mortgage Backed Bonds fund has good levels of liquidity, currently 14 per cent, it has no arrears and it has never had a default. There are no property developments in the portfolio and all the buildings over which mortgages are held are established and well-tenanted. There are no related party loans.
"The reality is that this is a solid investment which has delivered attractive, consistent returns. The fund is performing well, however we cannot ignore the market sentiment and the impact this is having on investor confidence," said Stewart.
"AXA's decision has been made in the best interests of investors. No fund manager likes suspending withdrawals, but they also have a duty to take necessary actions to protect the interests of all investors.
"We are a bit worried that investors are very wary, very nervous and are behaving more in an emotive than in a practical sense," he said.
Redemptions were "frankly not more than normal".
"We've moved first and the fullness of time will determine if that was right or wrong," he said.
The suspension was unprecedented.
"We are trying to say there are wholesale investors here who do understand underlying mortgage assets better than retail investors. So let's say to them, `guys leave your money here because we all know the assets are in good shape'."
Stewart said that investments and withdrawals from smaller investors (known as Class A) would remain as normal.
"However it is possible that if withdrawals from smaller investors dramatically increase we may be forced to suspend trading in the retail bonds as well.
"We are hopeful investors and their advisers will clearly consider the nature and benefit of good quality mortgage assets when making investment decisions in the current environment.
"These are difficult times for investors. Unfortunately as investors come under stress they naturally seek security of mind, which at times may prompt them to make hasty, short-term decisions at odds with their longer-term interests," Stewart said.
The Mortgage Backed Bonds fund has $229 million in funds under management and invests in first-ranking mortgages over New Zealand commercial properties, fixed interest securities and cash.
There are two types of holdings, Class A bonds for individuals and Class C for wholesale or institutional investors. AXA says there are $112 million of the Class A bonds and $117 million of the Class C.
Today's suspension relates only to the Class C bondholders who have $1 million or more invested in the fund.
- HERALD ONLINE/ NZPA
