KEY POINTS:
More than $2 billion of investors' money in frozen funds will be tradeable again today as an online secondary market goes live.
Trademyunits.co.nz - set up by Auckland-based entrepreneurs Martin Cleland-Pottie and Asher Hastings - will offer a way for unit holders to sell part or all of their stake in frozen funds by pooling the units together and offering them to institutional buyers.
A former equity broker for Frater Williams (now owned by Forsyth Barr) and consultant for PricewaterhouseCoopers, Cleland-Pottie said he came up with the idea after hearing about Guardian Trust's frozen fund.
Guardian suspended withdrawals in its $249 million mortgage trust in July. Initially he thought about trying to set up a way for the units to be traded on auction site Trade Me.
But there were "very material reasons" why they couldn't be sold on Trade Me.
"Trade Me exists on goodwill and that is not enough to extend it into the financial services arena," he said.
Instead he and Hastings, who first met at Frater Williams 15 years ago, set about designing their own site using Hastings' web expertise.
"We have tried to develop a solution that is sensitive to the situation of many unit holders, providing those with an urgent need for liquidity with the option to sell at what will hopefully be a small discount to the original investment value," Hastings said.
Sellers register by entering the details of their units, how many units they would like to sell, their bank account details and a minimum price they would sell their investment for on the website.
Transfer documents are then sent out to be signed by the seller who can view the details online.
The units of investors in the same funds are then pooled together to try to sell them to institutional investors.
Cleland-Pottie and Hastings' company Phoenix Capital Management will manage the sale and take up to 2 per cent of the sale value as commission.
But the platform has received a mixed response from fund managers and other industry commentators who say it may force desperate sellers into taking a big loss on their capital investment.
"I'm just a bit nervous about what sort of discount people may have to take on in light of these times. The principle is great. But is it workable? I'm not convinced," AXA chief executive Ralph Stewart said. AXA has four frozen funds totalling $575 million.
Spicers senior financial adviser Jeff Matthews also questioned whether enough investors would be interested.
"The only way it would work is if there were a lot of desperate people who needed to sell."
Others are taking a cautious approach.
Sam Stubbs, chief executive of Tower Asset Management which began closing down its mortgage fund in April, said secondary trading was not an option it was looking at, at the moment.
"Nevertheless, we would be very interested to see if the business gets up and running, and functions smoothly for a while and the prices are fair, we would consider using them but couldn't really commit as this stage - it's just a concept."
AMP, Canterbury Mortgage Trust and Guardian Trust have indicated they would consider a secondary trading platform for unit holders.
Canterbury Mortgage Trust managing director Graeme Main said in principle it would be interested.
Cleland-Pottie said as far as he was aware all of the trust deeds included the ability for unit holders to transfer the units to someone else.
FROZEN FUNDS
* Axa Mortgage Backed Bond fund: $320 million.
* Axa Mortgage Distribution Fund, Mortgage Investment Fund and AXA Investment Portfolio: $225 million.
* Canterbury Mortgage Trust fund: $250 million.
* Totara First Mortgage: $60 million.
* Guardian Mortgage Fund: $249 million.
* Tower Mortgage Plus: $242 million.
* AMP Capital NZ Property Fund: $419 million.
* ING Diversified Yield and Regular Income funds: $521 million.
* Total: $2.286 billion.
