KEY POINTS:
AXA New Zealand is hoping it has made the right call in becoming the fifth investment manager in as many months to suspend a mortgage-backed security.
Late yesterday AXA announced it had suspended redemptions by institutional investors from its Mortgage Backed Bonds fund. The suspension is for three months.
At this stage Mum and Dad investors are exempt, but if redemptions by smaller investors increase dramatically the suspension might have to extend to them, the fund manager said.
AXA follows AMP, Guardian Trust, Canterbury Mortgage Trust, Totara First Mortgage fund and Tower in putting a stop to investors withdrawing funds from mortgage-backed investments.
AXA NZ chief executive Ralph Stewart said the move was purely due to the startling downturn in market sentiment about such products.
None of the Mortgage Backed Bonds' first-ranking mortgages were in arrears, and it had not suffered a run on funds.
"What we're trying to say is, it looks as though the market sentiment is building in this space, investors may respond to the wrong signals and force us torealise assets that under normal conditions wouldn't be realised."
Stewart said institutional investors in the product - which included AXA itself - were best placed to understand this.
"So we'll close it to them and leave it open for retail investors, in the hope that they have good advice and understand the assets are fine and don't run for the door."
However Stewart conceded he was "worried" the move would send the wrong signal to small investors and create a panic. Wholesale investors account for about half of the $230 million invested in the bonds.
Stewart said the decision to suspend only institutional redemptions was "a wee bit of a test case", in the hopes that it would slow things down.
Asked if negative sentiment over mortgage-backed investments was getting crazy, he replied, 'It is."
AXA's Mortgage Backed Bonds fund invests in first-ranking mortgages on New Zealand commercial properties, fixed-interest securities and cash.
"There are no property developments in the portfolio and all the buildings ... are established and well tenanted. There are no related party loans," Stewart said.
He said AXA had another fund investing in residential mortgages through another channel, but he did not believe it needed to do anything about that one at this stage.
Last week NZX-owned fund monitoring and research firm FundSource took the unusual step of putting a hold on its recommendation for mortgage trusts, sending out an alert to hundreds of financial advisers.
The move came after research showed investors have pulled close to $300 million out of mortgage trusts and property funds in the last quarter alone.
Also last week, AMP froze withdrawals from its $419 million Capital NZ Property Fund, saying it was "in the best long-term interests of investors". That fund invests in quality commercial, retail and industrial properties, including a stake in the much-praised Botany Town Centre in east Auckland.
Its move followed the suspension of withdrawals from the Guardian Trust Mortgage Fund, the Canterbury Mortgage Trust and the Totara First Mortgage fund. In April fund manager Tower announced it would close its $242 million Mortgage Plus fund.
Last night AMP declined to comment further, and no executives from either Tower or Guardian Trust were available.
TESTING THE WATER
The fund: AXA New Zealand's Mortgage Backed Bonds fund.
Investments: $230 million in first-ranking commercial mortgages, fixed-interest securities and cash.
Terms of suspension: Institutional investors with around $117 million invested are blocked from making redemptions for three months.
