Perpetual places Mortgage Fund in moratorium after surge in redemptions in wake of FMA legal action over related party loans

Perpetual Trust has announced it has placed its Mortgage Fund into moratorium after a surge in redemption requests in the wake of the Financial Market Authority's legal action over related party loans by a Perpetual Cash fund to George Kerr's Torchlight property development funds.

Perpetual said the moratorium, which freezes the funds and stops redemption requests, would last from 2pm on July 5 to the close of business on August 31. See our article from 1 pm on July 5 detailing the FMA's criticism of Perpetual, which is owned by Pyne Gould Corp, which in turn has George Kerr as its controlling shareholder.

Perpetual CEO Patrick Middleton said the moratorium was a result of a recent surge of applications for redemptions.

“Following recent adverse publicity, Perpetual received applications for the redemption of 6.1 million units (NZ$6.1 million).  As a result of court orders sought by the Fund’s statutory supervisor, Trustees Executors Limited, and not opposed by its trustee, Perpetual, the Fund's ability to make payments was restrained.  Accordingly, Perpetual determined, in accordance with the Fund’s Trust Deed, that it is likely that payments for requested redemptions are unable to be made," Middleton said.

“Accordingly, having regard to the best interests of the unit holders in the Fund as a group, Perpetual has determined to declare a moratorium on payments in respect of that Fund," he said.

“While the moratorium is in place, the Fund will not be able to accept new investments, nor pay withdrawals or distributions to unit holders.  However, this does not necessarily mean that the Fund will close, or that the value of units will be affected.  The Fund will continue to accrue and collect interest together with the repayment of principal from borrowers as this falls due."

Perpetual said it would continue to work with Trustees Executors and the Financial Markets Authority "on achieving the best outcome for the Fund’s unit holders."

“This development may be concerning to unit holders, but they need to be assured that we will be contacting them with more information as soon as possible.”

The Fund has been in existence for 20 years. 

"Loans through the Fund are supported by first mortgage securities over freehold title.  As at 11 July 2012, the loan-to-valuation ratio for the entire portfolio was 44%," it said.

Morningstar lists the Mortgage Fund as having NZ$61.4 million of investments as at May 31.

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4 Comments

for the layman, is this a "run on the bank" except on the investment company instead?

Essentially yes.

large volumes of shares in HEARTLAND traded this morning.
I wonder if mr kerr is cashing up.
It can only be good for Heartlands chances of becoming a bank

As Trustee of a number of failed finance companies, has perpetual learnt nothing!!