Investors in Australian Unity Investments’ two mortgage funds withdrew $150 million in the week after the Government’s October 13 announcement of a bank deposit guarantee, before the mutual froze redemptions for a month last Wednesday and joined industry calls for ‘deposit-like’ products to be included in the guarantee.
The head of AUI, David Bryant, said that redemption requests had arrived at nearly 20 times their normal rate following the announcement of the guarantee and that the two funds (with $1.25 billion remaining between them) would only have been able to immediately pay out another 50 per cent on top of what had already been withdrawn in the week.
Redemptions will be frozen until November 24, after which AUI will introduce a quarterly capped facility with redemptions paid within twenty-one days of the end of each period. Where requests exceed the total available for redemption, requests may be paid on a pro-rata basis. The previous redemption process generally provided for full withdrawals within five working days of receipt of a redemption request.
AUI’s story has been repeated across the mortgage fund industry, where most major funds have now frozen or limited redemptions to ensure all investors are treated fairly following the run triggered by the Government’s deposit guarantee announcement.
At presstime last night, talks were continuing in Canberra between Treasury officials and an IFSA delegation lead by CEO Richard Gilbert.
AUI is among the managers which have called for the guarantee to be extended to "deposit-like" products, which Bryant argued included mortgage funds.
"The Government has ruled out guaranteeing ‘market-linked’ funds, but mortgage funds are not linked to listed markets, and in fact they are carrying out a process of writing long-term mortgages to solid businesses that is no different from other financial institutions covered by the guarantee," he said.