ING to unfreeze two funds

By MARTA STEEMAN - Businessday | Wednesday, 27 August 2008

Fund manager ING New Zealand is likely to unfreeze about $520 million of money owed to 8000 investors in two funds in the next six months.

But how much investors will be returned is highly uncertain.

The two funds have fallen 20% and 17% in value since the suspension of withdrawals in mid-March, nearly six months ago.

They are the Diversified Yield Fund and the Regular Income fund both invested in complex debt investments in the United States and Europe called collateralised debt obligations (cdos) and collateralised loan obligations (clos).

ING NZ marketing manager Steven Giannoulis said freezing the two funds for as long as a year was "too long".

At some point ING NZ had to make a decision on the funds in spite of how unattractive the options were because investors would want their money back.

The two options were to sell the investments in the funds for whatever ING could get a firesale and to distribute the proceeds to investors in proportion to their investments.

The second was to reopen the fund and let investors withdraw their money if they wanted and sell assets as the money was needed to repay investors.

Finance commentator Anthony Quirk, of Milford Asset Management, said recently in a commentary that the value of investments in cdos by New Zealand organisations might be impacted by sales in the United States of cdos at heavily reduced values.

Recently, huge US investment banker Merrill Lynch sold a $US30.6 billion (face value) portfolio of cdos for 22c in the dollar. The buyer was Lone Star funds, a Dallas-based investor in distressed investments, who would have considered they were worth more than 22c in the dollar. Merrill Lynch had wanted the distressed investments off its books, Quirk said.

ING NZ has values of 65c a unit for the DYF and 58c a unit for the RIF on its website.

When ING froze the funds in March it said liquidity was an issue and there were hardly any buyers. But Quirk said sales were now taking place giving an indication of value.

But Giannoulis said Merrill's cdos had been at the bottom end of the market in the US housing market. ING had less than 10 per cent of the two funds invested in cdos in housing and the cdos they had in housing were conservatively valued at 5c in the dollar.

A large part of the two funds' investment portfolios were in clos valued at close to their purchase price because they were backed by senior secured loans to business and corporates with no defaults and ranking high up in the debt "pecking order".

Giannoulis said it was still difficult to value them because there were not enough sales.

Meanwhile, the Banking Ombudsman's office is working on scores of inquiries and complaints from ANZ Bank customers and others claiming they were persuaded to take their savings from term deposits and invest in the two frozen ING funds. ING New Zealand is half-owned by ANZ Bank.