KEY POINTS:
Investment manager ING has been forced to suspend withdrawals from two of its funds in one of the global credit crunch's first direct hits on Kiwi investors.
The indefinite suspension of withdrawals from the $353 million ING Diversified Yield Fund and the $168 million ING Regular Income Fund is effective from today. ING is also not selling any more units in the funds.
Both funds invested primarily in debt securities which have been hit hard by the credit crisis.
One investor who had tried to get her money out of the Regular Income Fund instead received a letter from ING informing her of the suspensions. "The fund has experienced an unusually high level of withdrawal requests in recent months," ING wrote.
The 85-year-old woman put $300,000 into the Regular Income Fund 18 months ago and has since lost $60,000 on the value of her investment. "I thought I'll get out of it while the going's good."
The woman said it was "maddening" that she was now being forced to ride it out.
The funds' portfolios are made up largely of Collateralised Debt Obligations (CDOs) and Collateralised Loan Obligations (CLOs), financial products which package bank loans and other types of debts into securities. Rights to the CDOs and CLOs are then sold to investors like ING.
ING said less than 10 per cent of the funds' assets were in the notorious sub-prime mortgage sector.
Last month investors in a similar product, Macquarie New Zealand Fortress notes, were told they had lost just over half their investment thanks to the credit crunch. The portfolio invested in US senior loans which had significantly lost value.
In August ING's head of marketing, Steven Giannoulis, told the good returns.co.nz website that ING had $125 million in cash or near cash between its two funds available to pay investors out.
He said ING was well placed to ride out the credit market "contagion".
Yesterday ING chief executive officer Marc Lieberman said that money had been used to fund redemptions. "Where we are today, is the global credit crunch has continued. It's actually gotten a bit worse in some cases, and liquidity within the market has become much more constrained.
"So although we still do have cash within the funds, we don't have enough cash to fund what we believe to be ongoing redemptions over an extended period of time."
Lieberman said if ING had allowed the situation to continue it would have had to sell the funds' securities into the market at a low price, thereby disadvantaging investors.
He said this wasn't a situation where loans were being defaulted on. Rather the credit crisis meant there were virtually no buyers for CDOs or CLOs, and their value had plummeted.
Lieberman pointed out that ING would not collect management fees during the suspension period.
Investors in the two funds will continue to receive interest payments during the suspension. The funds have been paying an income stream of around 6-8 per cent.
Unit prices for the funds yesterday were 81.05c for the Diversified Yield Fund, and 70.5c for the Regular Income Fund, down from their $1 issue price.
ING has a total of $8.7 billion in funds under management,
The suspension of withdrawals from the funds has angered retired investor Eddie Graham.
He and his wife had asked their ANZ financial adviser for a low risk, diversified portfolio. He ended up with money in the ING Diversified Yield Fund, which he has lost $23,000 on. Eddie wants to contact other investors in the Fund and take action.
"If I could locate even 50 of them, and say look, are you willing to put $1000 in and have a go at ANZ or ING in the court?"
WHAT ARE CDOs?
* CDOs are Collateralised Debt Obligations. CLOs are Collateralised Loan Obligations.
* They are securities backed by a pool of bonds, loans and other assets - as opposed to investing in a single bond. Investors who buy into them can choose various levels of risk, in exchange for higher or lower interest payments
