KEY POINTS:
Mortgage funds were already haemorrhaging money before the Government announced its deposit guarantee scheme on October 12, figures show.
According to research firm FundSource a net $290 million flowed out of the sector in the three months to September 30.
That followed on from a $222 million outflow in the previous quarter.
On Tuesday, AXA suspended withdrawals for 30 days on three of its mortgage funds citing confusion over who would be covered by the Government's deposit guarantee scheme and fears that investors would take their money out if mortgage trusts were not included in the scheme.
AXA's three mortgage funds have a combined value of $225 million and affect around 5000 investors.
FundSource figures show AXA's mortgage investment business had outflows of $81.53 million in the last quarter - the highest of all fund managers monitored by FundSource.
ASB had the second highest outflows, losing $63.43 million, followed by BT, Westpac's fund management arm, which lost $50.93 million.
AXA is the third largest manager of mortgage investment money after BT and ASB.
AXA New Zealand chief investment officer Ralph Stewart said the majority of the $81 million was attributable to withdrawals made on its Mortgage Backed Bond fund which it had closed at the beginning of August.
Stewart said a wholesale investor had taken $35 million out of the fund in the wake of the Tower and Guardian Trust mortgage fund freezes.
That had resulted in suspension of wholesale withdrawals and it was then extended after retail investors withdrew a further $25 million from the fund.
The remaining $20 million consisted of redemptions on the three funds closed on Tuesday and had contributed to reducing its cash levels from around 15 per cent to 8 per cent.
"Yes there had been some withdrawals but they weren't outside normal limits."
Stewart conceded that at some point if the redemptions had continued it would have had to freeze the funds regardless of the deposit guarantee scheme.
"But we had been stable at around eight to 10 per cent for the last six weeks. This was not the reason for closing the three funds."
Stewart has called for mortgage trusts to be included in the Government's deposit guarantee scheme.
He insisted his move was not designed to bail out a sector already facing decline.
"No fund manager wants to close funds for any reason. The primary driver for closure is the inevitability of confusion surrounding the deposit guarantee scheme."
Stewart said AXA had seen what had happened in Australia and the policy decision was consistent across the business.
Yesterday Australian media said the Rudd Government had announced mortgage trusts could be included in a separate scheme but only if they complied with the same regulations as a bank.
New Zealand has not changed its deposit scheme but yesterday Finance Minister Michael Cullen said the nature of mortgage funds would determine whether they would be covered by the guarantee scheme.
Some would, but the Government could not end up guaranteeing investments which, by their nature, went up and down in value. "We don't want, obviously, to collapse the managed funds industry. We will look at whatever measures are sensible to avoid that," he told Radio NZ.
But BT funds management chief operating officer Fiona Oliver said it was difficult to see how mortgage funds could be covered under the scheme without the underlying mortgages being guaranteed as well. "I just can't see how they could do it. I think the Government is in a really difficult position."
EBB AND FLOW
Net fund flows for the three months ending September 30
TOP THREE POSITIVE SECTORS
* NZ Cash $763.74m
* NZ Diversified $349m
* NZ Fixed Interest $4.3m
TOP THREE NEGATIVE SECTORS
* NZ Mortgage - $290.86m
* Internat. Fixed Interest - $79.25m
* NZ Property - $41.31m
