Supervisor strips Dunedin manager from three funds due to governance breaches

Financial Markets Authority chief executive Rob Everett. Photo / Supplied

KPMG has been appointed as temporary managers of three investment funds after Trustees Executors asked the Financial Markets Authority (FMA) to strip Fund Managers Otago (FMO) as managers.

On Tuesday Trustees Executors announced that as licensed supervisor of FMO it had exercised its powers under the Financial Markets Conduct Act to remove the Dunedin-based company "in the best interests of investors".

Matthew Band, Trustees Executors' general manager of corporate trustee services said the company had "worked closely and continuously with FMO's board and management to address issues related to governance, compliance, solvency of the manager, and regulatory breaches."

However "FMO has been unable to improve its performance to the standard that we expect from a licensed manager, and that which is required under the FMCA."

According to the FMA, Trustees Executors was unable to find another licensed manager willing to fill the vacancy, so it requested that the FMA exercise its power to appoint KPMG Restructuring Services as the temporary manager.

It is the first time the FMA has used its powers to appoint a temporary manager of a fund.

Two of the FMO funds, the Capital Mortgage Income Trust and the NZ Mortgage Income Trust, were already in the process of being wound up.

A third fund, NZ Mortgage Income Trust (No 2) Fund, has around 600 investors. It will now also be wound up. Since Monday, investors in the scheme have been unable to redeem units in the fund.

At the end of March there was just over $20 million in net assets across the three funds, a spokesman for Trustees Executors said.

The Financial Markets Authority confirmed it had appointed KPMG.

FMA director of supervision James Greig, said Trustees Executors' decision to remove FMO demonstrated that provisions in the Financial Markets Conduct Act to protect the interests of investors could be used when necessary.

"Supervisors are the frontline regulators for managed investment schemes and their oversight is designed to ensure fund managers meet their obligations, and take appropriate action when managers do not meet those obligations," he said.

No one at FMO could be reached for comment.

The company's managing director, Peter Hutchison, has been with the company since its inception in 1994, according to its website. Hutchison is also the national president of the Cancer Society of New Zealand.

FMO is chaired by John Gallaher, who had been an independent director of the company since 2001. Gallagher is a principal at Forsyth Barr.

In its latest accounts for the year to March 30, FMO recorded a net loss of $364,838 and had cash outflows of $292,487, with management had forecast was set to continue.

"This represents a material uncertainty that may cast significant doubt about the ability of the company to continue to operate as a going concern and therefore the company may be unable to realise its assets and discharge its liabilities in the normal course of business."

The company flagged a new marketing push to grow funds under management of the NZ Mortgage Income Trust (No.2 Fund).

Auditors PwC flagged a "material uncertainty" around the company's ability to operate as a going concern.