KEY POINTS:
Three mortgage funds suspended by AXA on a 30-day trial at the end of October are to remain frozen until at least the end of March.
AXA initially stopped withdrawals from its Mortgage Distribution Fund, Mortgage Investment Fund and AXA Investment Portfolio because of uncertainty over whether they would be covered under the Reserve Bank's deposit guarantee scheme. The funds have a combined value of $225 million with around 5000 investors.
AXA chief executive Ralph Stewart had hoped to secure a deal with the Reserve Bank to enable the funds to be covered. But he said that was unlikely to happen now. "I don't think that is going to be possible."
Stewart said that while the underlying mortgages could be considered to be a security, the structure of the investment meant they could not be included in the guarantee scheme. "While I am disappointed, I understand."
AXA had instead asked its trustee for more time to work out what it would do with the investments.
Stewart said there were several areas of concern it was looking to address including how the economic downturn was affecting the assets, what the guarantee meant for investments not covered and whether there would be any benefit in repatriating some capital.
Closing down the mortgage trust was an option in its trust deed but Stewart said that was likely to take as long as winding down the portfolio and investors would not benefit as much from a fire sale of the assets.
Despite the problems, he believed the mortgage trust industry continued to have a future.
"I think it does. The problem is the structure at times like this. The real challenge is to find a way to manage liquidity at times like this."
But he said the dropping cash rates meant investments like mortgage funds, which could product a higher return, were going to continue to be attractive.
"Mortgage funds have got a place in New Zealand. We have just got to find a better way to structure them."
The frozen funds would continue to pay interest. The $230 million Mortgage Backed Bond Fund, which froze withdrawals in August, would also continue to be frozen until at least mid-February.
More than $1 billion of mortgage trust investments are frozen, including the $249 million Guardian Mortgage Fund, $250 million Canterbury Mortgage Trust fund and $60 million Totara First Mortgage fund.
Tower is also in the process of winding down its $242 million Mortgage Plus fund after closing it in April.
