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Message: Material Spike in Redemptions
A couple of articles below that reveal just how fast conditions are deteriorating for mortgage and hedge funds. Governments may solve some of the problems, perhaps only temporarily, but they will likely be overwhelmed by the barrage. Even credit conditions worsened again overnight despite the recent and extreme government interventions.
Regards - VHF
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Four fund providers suspend withdrawals as redemptions soar
Business Day
Ruth Williams
October 24, 2008
AUSTRALIA'S mortgage fund industry has dramatically succumbed to a flight of money to government-guaranteed bank deposits, with four of the biggest five fund providers suspending withdrawals.
AXA Asia Pacific, Australian Unity and Perpetual Investment Management last night suspended redemptions on a string of mortgage-backed investment funds, in an unprecedented series of announcements. They followed a similar move on the Challenger Howard Mortgage Fund — the country's biggest — earlier this week.
The latest three come after what has been described as a dramatic spike in redemptions from mortgage funds after the Government moved to guarantee bank deposits almost two weeks ago. But the rate of redemptions rapidly gained pace in the past 48 hours, after the Challenger move and as the scope and nature of the guarantee was hotly debated by the Government and Opposition in Canberra.
Distributions from the funds are not affected, and the groups said their capital positions remained sound.
The Government last night appeared unable to resolve the cascading problem, with Treasurer Wayne Swan advising those affected to contact CentreLink to see if they were eligible for temporary support.
"These are not deposits in a bank, we are dealing with market-linked investments," Mr Swan said. "The Government is not in a position, and never can be in a position, to provide the same guarantee to market-linked investments as apply to the banking system."
Four of the five biggest mortgage fund providers in the country — all save ING — have now suspended withdrawals from their funds, worth a collective $10 billion, according to research house Lonsec.
Based on an average investment of about $40,000, up to 250,000 people may be unable to access their mortgage fund investments. ING said last night that its fund was still open for deposits and withdrawals, and a spokesman said the group was reviewing the situation.
Australian Unity chief of investments David Bryant called on the Government to extend the guarantee, predicting cash management trusts would face the same issues as mortgage funds unless the Government acted.
He rejected suggestions mortgage funds were "market-linked investments", saying they were backed by solid assets. The main objective was to protect investors' capital, not to take risks to provide much higher returns.
"The fundamentals of a mortgage trust are no different to a bank," he said.
Richard Brandweiner, the group executive income and multi-sector at Perpetual, said that group's move was prompted by a "very material spike" in redemptions over the past 48 hours.
Mr Brandweiner said the Government needed to act "very quickly" to fix the problem, saying it could have flow-on consequences for the wider economy.
"This sector really needs support," he said.
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Financial crisis: Hedge Fund turmoil is hitting millions of savers, experts say
Millions of savers have been warned their pensions and investments will be hit badly by the turmoil now engulfing the hedge fund industry.
TheTelegraph
By Harry Wallop, Consumer Affairs Editor
Last Updated: 7:23PM BST 24 Oct 2008
Though very few private investors have their money tied up in hedge funds, everyone who owns shares will be affected – including the estimated nine million people whose pensions are invested in the stock market.
In recent days the future of the $2 trillion (£1.3 billion) hedge fund industry has looked increasingly precarious. One leading player predicted on Thursday that more than a quarter of the world's 8,000 hedge funds could collapse.
Many have already started to fail, and their troubles are one of the main reasons why the London stock market fell so heavily on Friday, wiping billions of pounds of savers' pension pots.
Mark Dampier, the head of research at financial advisor Hargreaves Landsown, said: "It affects the man in the street, for sure. If you've got an endowment maturing, or you are coming up for retirement and need to buy an annuity – you will see your savings worth much less than before.
"Hedge funds de-leveraging is dragging the whole market downwards."
The hedge fund industry has doubled in size in the last three years and proved to be one of the most powerful forces in the global financial system.
Hedge funds came about as an alternative to traditional fund managers, who invest clients' money on their behalf, in stocks, bonds, property and other assets.
Whereas a traditional fund manager's strategy is to "beat the market", hedge fund managers promise – in return for a large fee – to make "absolute returns" for their clients, making a profit even if the stock or property market is falling.
However, an increasing number of hedge funds moved away from these roots to take increasingly sophisticated bets.
The concern over hedge funds is that they are leveraged. That means they have borrowed money to invest in stock markets.
Paul Kavanagh, Chairman of stockbroker Killik Capital, said: "Some funds have borrowed up to £100 for £1 they have invested. What we are seeing is massive deleveraging, as market volatility increases."
This means that the hedge fund managers are having to pay back the debt to their lenders, but they need to sell assets rapidly to raise the money.
This has created a "wall of distressed selling", according to Mr Dampier.
The situation has been exacerbated by hedge fund investors – mostly institutions and super-rich individuals – asking for their money back. Again, this has forced the hedge funds to sell assets, which has forced down the price of many shares.
"They are trying to dress up the stock market falls as investors reacting to the GDP figures, but most of this is forced liquidation by the hedge funds," said Mr Kavanagh.
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