KEY POINTS:
The global sub-prime crisis and the slump in the local property market have claimed another victim close to home.
Today sees the the closure of a Tower mortgage fund following increasing withdrawals on the fund and a sharp rise in defaults on residential and commercial mortgages.
Last month, ING had to close two of its funds, although those funds were exposed to US sub-prime and other complex derivatives, whereas this fund is exposed directly to New Zealand property.
Tower said the NZ$242 million TOWER Mortgage Plus fund, which is owned and issued by Trustees Executors, will shut after a surge in redemption requests and a jump in the proportion of mortgages in arrears to 9.1 per cent.
The Trustees Executors-owned 1st Mortgage Fund, branded TOWER Mortgage Plus, was being wound up, Tower Investments Chief Executive Sam Stubbs said. The fund lent on a diversified portfolio of residential and commercial first mortgages and was no longer relevant given heavy competition from banks, Stubbs said.
"The current credit environment and increasing arrears and defaults require more conservative provisioning for bad and doubtful debts, which impacts the interest rate payable," Stubbs said. "This has led to increasing redemption requests and it is prudent and appropriate to act in the best interests of all investors by winding up the fund. We recommended this to the Trustee and they agreed."
The fund is a group investment fund and was therefore difficult to convert into a PIE (Portfolio Investment Entity) fund.
"As the mortgages are paid and/or sold to other parties in an orderly wind up process, the proceeds will be returned to investors. The first payment is anticipated within 30 days and quarterly thereafter," Stubbs said.
The fund currently has NZ$242 million of assets, including 450 residential and commercial 1st Mortgages worth NZ$220 million and NZ$22 million in cash.
Tower sold Trustees Executors, which is chaired by former Prime Minister Jim Bolger, in 2003 to US group Sheffield Investments Ltd.
- INTEREST.CO.NZ
