As reported, Trilogy Funds became the responsible entity on the LM Wholesale First Mortgage Income Fund after they were voted in at a unitholder meeting held in Sydney in early November.
It should be noted that only five of the 237 investors in the fund voted in favour of the decision, but that those five were institutional investors with unit stakes totalling 53% of the fund and that many of these ran superannuation schemes and did not consult the underlying investors.
The LM Wholesale First Mortgage Income Fund is one of three feeder funds into the LM First Mortgage Income Fund – a fund which invests in a portfolio of Australian registered first mortgages over commercial, residential, industrial, retail and vacant land – and represents 20% of the main fund. The LM First Mortgage Income Fund closed to new investment in March 2009 due to headwinds caused by the global financial crisis.
In a recent communication to investors, LM confirmed that the fund would not be reopening and that its strategy would be to continue to sell down the fund’s assets on the open market and to distribute redemptions on a pro-rata basis to all investors.
In this communication, which was sent to investors in all three of the feeder funds as well as the main fund following the takeover, LM chief executive Peter Drake, apologised to investors for the “time consuming frustration, inconvenience and confusion caused through Trilogy’s action”.
According to a previous communication from Drake, one of the main reasons Trilogy attacked LM was that it believed LM was charging excessive fees. However, LM points out that it made a commitment from the 1 November not to charge any further fees on the fund, if it had continued to be responsible entity, and that Trilogy is now charging investors 0.5% per annum, amounting to AUS$350,000, for “not managing any assets”.
LM also noted that there may have been a past failing in not communicating with investors over the action it has been taking over the past three years of the fund’s closure, which it said has resulted in the “misperception of many, that we have been doing nothing” – allowing Trilogy the opening to make its bid.
However, LM said it is adamant that Trilogy will not succeed in its attempts to take over any other funds, pointing out that it has already failed to get even a vote on the continued control of the LM Currency Protected Australian Income Fund – another of the feeder funds.
Deplorable track record
Turning to Trilogy, LM has also brought into question its ability to run money, highlighting its takeover of the City Pacific First Mortgage Fund which has continued to lose value since Trilogy wrested control from its original manager in 2009. According to LM, the fund has lost 73% of its value since its takeover, with shares falling from 61c to 13c.
LM also points out that Trilogy launched its campaign “without holding the necessary license” to manage the wholesale fund or the currency fund.
“Trilogy is a corporate fund raider that has grown its distribution by pirating funds with false promises, and failing to deliver,” said Drake. “Trilogy is not well regarded in Australia, and has a deplorable track record.
“Fancy putting all of those poor investors and licensed financial planners through weeks of agonising distress, weighing up the pros and cons of removing a manager who has guarded their investment, and the fund with honesty and integrity for 14 years. To disturb all of these investors and advisers, and to not have the ability to manage is woeful.”
LM said it will continue to manage the assets of the main fund, the LM First Mortgage Income Fund, “for the benefit of all investors and its feeder funds, including investors in the LM Wholesale First Mortgage Income Fund”.