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Pyne Gould's Perpetual freezes mortgage fund due to run on cash

Thursday 12th July 2012

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Pyne Gould's Perpetual Trust has frozen its $56.2 million mortgage fund after a surged in investors seeking to pull their cash out amid increased scrutiny of the firm's related party loans.

Perpetual has put the fund in a moratorium where it will continue to accrue interest, but won't be able to accept new investments, nor pay withdrawals or distributions to unit-holdings, the wealth manager said in a statement. The firm took the move after receiving redemption applications worth some $6.1 million, or 11 percent of the fund, since July 5.

"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," chief executive Patrick Middleton. "This does not necessarily mean that the fund will close, or that the value of units will be affected."

Perpetual's funds have come under scrutiny after the Court of Appeal quashed a bid by Perpetual parent Pyne Gould to keep details of an investigation into related-party loans to George Kerr's Torchlight fund under wraps.

The Financial Markets Authority is looking into $28 million of loans from Perpetual's cash management fund to Torchlight Fund No 1 LP, a fund managed by Pyne Gould managing director George Kerr, after losing faith the debt would be repaid.

Since then, some $15 million has been repaid and Pyne Gould's Torchlight Securities sold down its holdings in lender Heartland New Zealand and rural services firm PGG Wrightson for some $15.4 million.

In a separate letter to unit holders in the cash management fund, which extended the loan to Torchlight, Perpetual asked investors to consider whether they want to keep their investment or have it repaid.

The Pyne Gould unit disputes the FMA's interpretation of the loan, but has asked Torchlight to prepay the facility ahead of schedule, which it expects to be completed this month.

Perpetual said the frozen mortgage fund has only one loan, worth $1.2 million, in arrears by about $40,000 in a letter to unit holders. The moratorium has been set to lift at the end of August, though Perpetual may extend it, according to its notice of moratorium.

"We will continue to worth with the fund's statutory supervisor, Trustees Executors Ltd, and the Financial Markets Authority on achieving the best outcome for the fund's unit holders," Middleton said.

Kerr and US hedge fund Baker Street Capital wrapped up a takeover bid for Pyne Gould via Australasian Equity Partners No 1 LP, securing 76 percent of the company in a 37-cents-a-share takeover bid that closed in March.

Kerr became involved in Pyne Gould in 2009, taking a cornerstone stake after the company faced large writedowns on the value of its Marac finance unit's property loan book, which has since been divested.

Since his involvement, Pyne Gould has taken stakes in the Kerr-managed Torchlight funds, which specialise in squeezing value out of distressed assets, and its board approved increasing the capital available to Torchlight to "seek modest investments beyond the Torchlight fund."

Last week, Pyne Gould dashed reports its was looking to divest its Perpetual Trust unit and shift its primary listing to the ASX, saying a number of options are under consideration, but nothing has been decided on.

Pyne Gould's shares were unchanged at 28 cents yesterday, valuing the firm at $60.7 million.

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