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LM Investment Management - Lack of confidence

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Keeping The Thread Alive

This document is under construction. If you have any interest, it'll be completed over the next week or so, time permitting.

The document discusses some issues about Trilogy's management of the PFMF as well as the two other funds so often mentioned in my postings.

I'm trying to put as much as I can into one concise document.

http://www.moneymagik.com/draft_email_to_members_november_2012.pdf
 
Re: "An Inquiring Mind"


Have just received the latest communication dated 24th January from LM via financial advisor which states:

"Investor Income Catch Up (applicable only to investors in the LM First Mortgage Income Fund who
elected not to reinvest income)

At the end of December/beginning of January, two months of income payments were made to investors
for the months July and August 2010.

By the week ending 25th January, we will have processed the next two months of income catch up for
the months of September and October 2010.

We will shortly report when the final two payments in the catch up will be made."

For those poor souls like me in the wholesale fund, the following statement:

"With respect to the LM Wholesale First Mortgage Income Fund, LM is no longer the responsible entity of that fund and all decisions regarding distributions to be made to investors in that fund are a matter for the new responsible entity of that fund. LM will however be making the appropriate payment to the new responsible entity for distribution to investors and we will notify the market of such payments."

Further enquiries reveals this may happen in March. Those in the LM WFMIF are now obviously 3rd class citizens with no definite promise of when we will receive any money. I don't know about anyone else in the WFMIF, but I still have not received May 2010 or June 2010, let alone any real promise of the further six payments for 2010.
 
Hi Mysteryman, it might be a matter of Trilogy's licence. If Trilogy doesn't have a proper licence, it could be that payments are not being made to the fund. This could be easily checked out by contacting Trilogy.

Further, Trilogy's fee would accrue from the date it was appointed. If the payments to your fund are small, the money could well be taken by Trilogy as management fees. Again, contacting Trilogy would resolve this issue.

In any event, it might be best to write/email Trilogy and ask for a likewise reply.
 
The RE without a licence to operate the fund?


A search of ASIC's professional registery in relation to Trilogy Funds Mangement reveals that the latest update to its licence was in 2009:

" 1 - 18/03/2009

1. This licence authorises the licensee to carry on a financial services business to:
(a) provide financial product advice for the following classes of financial products:
(i) deposit and payment products limited to:
(A) basic deposit products; and
(ii) interests in managed investment schemes limited to:
(A) own managed investment scheme only;
(b) deal in a financial product by:
(i) issuing, applying for, acquiring, varying or disposing of a financial product in respect of the following classes of financial products:
(A) interests in managed investment schemes limited to:
(1) own managed investment scheme only; and
(ii) applying for, acquiring, varying or disposing of a financial product on behalf of another person in respect of the following classes of products:
(A) deposit and payment products limited to:
(1) basic deposit products; and
(B) general insurance products; and
(c) operate the following kinds of registered manage investment schemes (including the holding of any incidental property) in its capacity as responsible entity:
(i) schemes which only hold the following types of property:
(A) direct real property;
(B) financial assets; and
(C) mortgages;
to retail and wholesale clients."

https://connectonline.asic.gov.au/R...9390051447098164&_adf.ctrl-state=16exggr770_4

(if the form comes up blank, just enter Trilogy Funds Management in the organization name, and select the Australian Financial Services Licencee.)

Checking under the authorised rep of an AFSL, there are no enteries for Trilogy.
 
Re: The RE without a licence to operate the fund?


I am a little confused. Managed to find all you point out about Trilogy and no entries for Trilogy under authorised rep of an AFSL, but on going through the same procedure using 'LM Investment Management Ltd', I can not find anything for them under authorised rep of an AFSL. I am not familiar with searching any of these registers, so maybe I'm looking in the wrong place or entering an incorrect title for LM. Need clarification.
 
Re: The RE without a licence to operate the fund?


https://connectonline.asic.gov.au/R...afrWindowMode=0&_adf.ctrl-state=17g91s2eqq_13

AFSL for LM Investment Management Limited ACN 077 208 461
(see page 6 here: http://www.trilogyfunds.com.au/site...ncy (NOM + EM)_INTERNAL PAGES_ WEB_FINAL.pdf)

"1 - 07/09/2012

1. This licence authorises the licensee to carry on a financial services business to:
(a) provide financial product advice for the following classes of financial products:
(i) life products limited to:
(A) life risk insurance products as well as any products issued by a Registered Life Insurance Company that are backed by one or more of its statutory funds; and
(ii) superannuation;
(b) deal in a financial product by:
(i) issuing, applying for, acquiring, varying or disposing of a financial product in respect of the following classes of financial products:
(A) interests in managed investment schemes limited to:
(1) own managed investment scheme only; and
(ii) applying for, acquiring, varying or disposing of a financial product on behalf of another person in respect of the following classes of products:
(A) deposit and payment products including:
(1) basic deposit products;
(2) deposit products other than basic deposit products; and
(3) non-cash payment products;
(B) derivatives;
(C) foreign exchange contracts;
(D) life products limited to:
(1) life risk insurance products as well as any products issued by a Registered Life Insurance Company that are backed by one or more of its statutory funds;
(E) interests in managed investment schemes including:
(1) investor directed portfolio services;
(F) securities; and
(G) superannuation;
(c) operate the following kinds of registered managed investment schemes (including the holding of any incidental property) in its capacity as responsible entity:
(i) "Lm Australian Structured Products Fund" scheme (ARSN: 149 875 669),
(A) a scheme which only holds the following types of property:
(1) derivatives; and
(2) financial assets; and
(ii) schemes which only hold the following types of property:
(A) direct real property;
(B) financial assets; and
(C) mortgages; and
(d) provide the following custodial or depository services:
(i) operate custodial or depository services other than investor directed portfolio services to retail and wholesale clients."

An entity is able to either hold a licence (AFSL) or be the authorised representative of a licencee. Therefore it's necessary to seach both for the holding of a licence, and for being an authorised representative.

You'll be able to compare the conditions of Trilogy's licence and those of LM's licence and note the glaring differences. Such conditions are subject to change if licence holders seek variations to licence conditions.
 
Ah .. Trilogy .. You've Done it Again !!

Well, the PFMF was worth about $113m as at 30 June 2012.

It's now the end of January 2013.

In that SEVEN month period, Trilogy paid members of the PFMF only 0.0075/unit - three quarters of one cent per unit.

Ah .. Trilogy .. You've done it again !!

http://moneymagik.com/yardy_yardy_yah.php

This information document re: Trilogy and Balmain Trilogy is as finished as it's going to be (unless a new topic arises):

http://moneymagik.com/info_letter_re_pacific_first_mortgage_fund.pdf
 
Interested Parties

Well I finally have a Hard and Soft copy of the new RG45 for the LM FMIF and am going through it with interest

Mysteryman, yes us investors in the WFMIF are being shafted regarding the distributions we are OWED, LM's Latest position is because they are no longer the RE then that's Trilogy's issue, despite the fact that these Distributions were accrued and accounted for in past years when LM was the RE. More re this later

Also FYI the Asgard system has just had the Unit Price changed from 0.73 down to 0.59 as from Dec 2102, which Trilogy has said is in INTERIM price only!!!

Also watch what happens with the Capital Distributions proposed in March as the reach Trilogy. We all know they will take a % of whats paid to them, BUT I am informed that Investors will have the Dollars and other details fully disclosed by LM so that we can see the differences re what leaves LM and what WFMIF investors actually receive, IF AND WHEN!!!
 

Good afternoon Rodent,

I notice you didn't publish the RG45 even though you have a "soft" copy of it.

I think you're being unfair to LM in relation to the distributions which you say "were accrued and accounted for in past years when LM was the RE". Since Trilogy is now the responsible entity for the WFMIF, it IS Trilogy's responsibility, LM are not being smart a#$es, it is simply a matter of fact. LM no longer have any control over the fund.

Any amounts owing to you (as a member of the WFMIF) are owed to the WFMIF to be distributed (less costs) to its members. You can no longer pressure LM in relation to the WFMIF, you have to pressure Trilogy.

In relation to the $0.59 (as at 31 December 2012), it could be no more than an interim for two reasons, (1) LM has not released the mid-year figures, and (2) it is not an audited amount in any event. I'm sure the figure will be updated when LM releases the mid-year accounts. The updated unit price would remain the result of unaudited accounts (as all such accounts are).

As to the disclosure of the amounts by LM (so that you'll be able to see how much Trilogy takes (including fund expenses)), is LM allowed to do that? IMO, the WFMIF is the member of the FMIF (not the members of the WFMIF), so any amounts payable by the FMIF to the WFMIF would seem private information.

In any event, Trilogy has to account for the fund's expenses (which include management fees), so members will be informed anyway.
 
My Understanding is that the 59c price is the audited value as at the financial for the 30th June 2012. Financial weren't completed and publsihed until Dec but auditors signed off as at 30th June figures. I am expecting that Dec price will see further deterioration and this is not the fault of Trilogy but clearly the result of LM's incompetence as the fund manager
 
Trilogy comments re Unit Price

LM Wholesale First Mortgage Income Fund - Unit pricing

Following our most recent communication in December, we are pleased to be able to provide an interim* unit price for each class of unit in the LM Wholesale First Mortgage Income Fund (‘Wholesale Fund’ or ‘the Fund’) as at 30 June 2012.

Please note the ‘product name’ may be different to that reported by the previous manager. There has not been a change of name, it is reflective of what was included in the information we were provided with by the previous manager. We have added columns highlighting the ‘type’ and ‘term’ of the unit class to help identify your class of investment.


The delay in publishing this data was largely due to difficulties we experienced in reconciling the Fund’s investor register with the accounts. The preparation of the annual financial report has also been delayed due to this issue. We anticipate that the report will be completed by the end of February 2013, at which point we will be in a position to calculate unit prices for the period since our appointment as Responsible Entity. Further information will be provided at this point.

*These prices are ‘interim’ prices and may vary subject to the finalisation of the audit for the year ended 30 June 2012. Trilogy takes no responsibility for the accuracy of these prices until verified by the auditor.

I have removed the Table, only included these words
 

Yes IrishDan, that's right - so, that's the only figure that able to be given until such time as LM releases the mid-year (31 December 2012) return some time on or after 15 March 2013.

As to you comment about further deterioration of the unit price, one only has to take at look at RG 45, Table H - LVR Ranges on page 8: (note: the table is not headed as Table "H", but that's in fact what it is)

LVR Range (90.01% to 100.00%) 27 loans $326,102,759

My guess is that there's no way that the $0.59 / unit is able to be sustained. This table is not much different to the one produced for the PFMF by Trilogy.

Managers have a choice to put the LVR range where they want - it's arbitary when loans are so damaged that the value of the loans have dropped BELOW the security asset values for those loans.

If the managers chose a high LVR, they're able to report the hight possible unit price, but in my view, investors would be "lost in space" to believe they'd be able to recover that amount for each of their units. However, if they report, what I would regard to be a more realistic LVR, let's say 85%, that'd mean a far reduced unit price, but a unit price more likely to be recovered.

In any event, in such damaged funds (as the LM FMIF and Trilogy PFMF), one shouldn't focus on the unit price - rather focus on how much one gets back. As I've posted before, the (net/gross) value (as declared by the manager) is only good for the manager to calculate its fees.

Members might find comfort with the $0.59/unit but since all the 27 loans valued at $326m are secured by 100% LVR, I think investor comfort will be very short lived indeed (LM discloses under the LVR table that the average LVR is 100%) - IMO, don't rely too much on any unit price given by the manager.

In fact, LM has placed the HIGHEST possible unit price on the fund for the RISKIEST LVR possible (100%).

It seems that ALL the loans are capitalized and pumped with accrued interest - and there's a substantial facility with scary interest - not a good look.

My guess (and that's all it is), is that fund will follow the Equititrust and PFMF funds to a place none of you really want to go, way down under $0.50/unit.

re: interim report - okay, I note it relates to the 30 June 2012 return. There's Trilogy with nothing much to do, and they're not up to date with financial year 2012. Ah.. it's okay, there's LM to blame.
 
ASICK said:
... Managers have a choice to put the LVR range where they want - it's arbitary when loans are so damaged that the value of the loans have dropped BELOW the security asset values for those loans.
...
Click to expand...

This quote should have been "that the security asset values have dropped BELOW the loan values". Then a new value for each loan has to be calculated by reference to a decided-on value of LVR.

so, LVR = Security Asset Value / Loan value (expressed as a percentage)

if LVR = 100% and security asset value = say, $326m, then loan = $326m

100% = ($326m / $326m) * 100%

To recover the unit price of $0.59/unit, all assets MUST be sold for a total of $326m.

If the sale of the Cairns security asset (loss = 62%) is used as a very nasty guide, that'd produce a unit price of $0.59 * .38 = about $0.225/unit.

Could be that fund could actually drop below $0.22/unit, especially if vacant land is in the mix.
 
A Whole Lota Lovan Goin' On

RG 45, page 6 (in part), "* Only as part of a structured exit strategy for a loan the Responsible Entity may subordinate the priority of a first mortgage. As at 31 October 2012 there is one loan which has been subordinated as an exit and recovery strategy. The total amount of the loan is $14,034,904 and the combined first and second loans constitute 68% of the value of the property held as security and the Responsible Entity expects to make full recovery of the lovan." (emphasis added)

Now, I make typos and other errors all day long, but when I see a professional document containing a typo, I always give the paragraph containing the error a re-read.

As I read the paragraph, I understand it to mean that the first ($?) and second mortgage loans ($14m) constitute 68% of the total security assets held by the fund. Yardy yardy yah: "the responsibile entity expects to make full recovery of the lovan" (note: (1) 100% LVR for all loans, and (2) all loans 90 days (or more) in arrears)

Could this loan be the land down at the Gold Coast? By the way, where's the land down at the Gold Coast in the Asset Progress Report?

Expecting full recovery with a 100% LVR and at least 90 days in arrears? Now, there's optimism for you !

Interestingly, LM says that the two related party loans are performing, yet discloses (1) all loans have a 100% LVR, and (2) all loans are 90 days (or more) in arrears.

There's no disclosure about the cash held by the fund as at 31 December 2012. I haven't read the requirements, maybe such disclosure isn't mandatory)

Cause for concern?:
"As at 31 October 2012 there were 21 borrowers. 15.89% of total monies was lent to the Fund’s largest borrower and 79% of total monies was lent to the Fund’s ten largest borrowers. The Fund has one borrower that exceeds 10.00% of the Fund’s assets and 9 borrowers that exceed 5% of the Fund’s assets. As the assets are sold and the number of mortgages decreases it is the Responsible Entity’s expectation that the exposure of the Fund to each borrower will increase." (emphasis added)

Would the preceding paragraph have something to do with the land down at the Gold Coast?

Oh Dear - it really isn't looking very good at all.
 
Re: A Whole Lota Lovan Goin' On: Exposure


For example about exposure increasing for members of the PFMF with Trilogy as manager read about "Martha Cove": http://moneymagik.com/info_letter_re_pacific_first_mortgage_fund.pdf

Excerpt:

"Martha Cove 30 June 2009: 155,951,001
Martha Cove 30 June 2010: 141,060,782
Martha Cove 30 June 2011: 117,657,495
Martha Cove 30 June 2012: 47,000,000"

2009 - 2010 = - $14.902m (or, - 09.6%)
2010 - 2011 = - $23.403m (or, - 16.6%)
2011 - 2012 = - $70.658m (or, - 60.0%)

The PFMF's RG45 for September 2012:
http://moneymagik.com/PFMF_RG45_30_September_2012.pdf

Note the high risk potential (Table "H") in the PFMF after over three years of massive write downs.

It's easy to see how Trilogy made heaps of fees out of the asset (and the receiver did well too), but look at the final value for investors after THREE YEARS.

Frankly speaking, I was surprised the LM disclosed that the average of the loans in LM's fund (in the 90.01% LVR- 100% LVR range) was 100%. While the fact disclosed is quite bad, I was nevertheless quite surprised with its disclosure. LM could have left members hoping that the $326m fell to the 90.01% LVR end of the range.

I note from the LM FMIF RG45 the following excerpt (bottom page 9), "The Fund will seek to recover all interest entitlement on behalf of investors but the Responsible Entity has ceased interest accrual based on recoverability analysis."

IMO, LM has "pumped" the loans to the max (100% LVR) with accruals which (in the circumstances) so much is unlikely to be recovered. "Blind Freddy" could see that recovery of 100% of a unit price based on assets, each with an 100% LVR and at least 90 days in arrears, is the reason accruals HAD to stop - if accruals were to continue, LM would have had no other choice except to drive loans in LVR ranges IN EXCESS of 100%, and that would have been inexcusable.

LM "pumped" the value of fund by way of accruals as far as it could (as one might pump up a tyre to the max).

And the beneficiary? Well, LM of course - fees, fees, fees - glorious fees.

http://www.youtube.com/watch?v=kV2uXwDwg2s

For investors? An expectation that's unachievable. (IMO, always moderate the unit price with the information provided in RG45 Table "H" (loans in LVR ranges))

I invite members of this thread to read the sorry tale of accruals in the PFMF with Trilogy as manager:

30 June 2010 - http://moneymagik.com/PFMF_return_jun_2010.pdf
30 June 2011 - http://moneymagik.com/PFMF_return_jun_2011.pdf
30 June 2012 - http://moneymagik.com/PFMF_return_30_June_2012.pdf

See how much accruals were "pumped" into the fund, see how much of that was impaired, and see how much of that was finally written off.

IMO, accruals accounting should NEVER have been permitted in MIS/MIFs - in many cases, along with woeful valuations, accruals have led investors to believe unit prices which have been unachieveable.

The only beneficiaries of such woeful valuations and accruals have been managers and "wishful thinking".

..
 
LM MPF : Second Mortgages - lost causes?

LM FMIF RG45 dated 31 December 2012:

"As at 31 October 2012 the Fund has two related party loans totaling $9,272,569 granted to entities controlled by the LM Managed Performance Fund (MPF). Both loans are performing assets for the Fund at commercial rates. Combined they equate to 2.84% of the total loan portfolio. In accordance with the Fund’s policy, these loans were approved by the Credit Committee on commercial, arm’s-length terms. They were approved at full Board level and are subject to review by the Board. The Fund does not have any loans to any LM directors.

LM is the Manager of the MPF. The MPF, in its own right, has second mortgages behind loans to third party borrowers that are first mortgages of the Fund. As at 31 October 2012 the MPF holds 3 such second mortgages in the total amount of $41,426,410. In each instance the Fund has entered into a Priority Deed to protect its own first mortgage position with the borrower as part of normal loan documentation procedures."

With ALL LM FMIF loans at 100% LVR, at least 90 days in default, and maxed to hilt with accrued interest, what chance does the $41.43m lent by the MPF as second mortgages have?

If the LM FMIF is unlikely to recover its first mortgage, then it seems to me that the chances for the LM MPF to recover its $41.43m in second mortgages must be zilch - (I don't know if the $41.43m is the original loan, its capitalized value, or if interest is still accruing).

I'm also surprised that LM is disclosing LM MPF information in the LM FMIF RG45.

IMO, the loans standing behind the LM FMIF must be of great concern for LM MPF investors.

Yipes .. is the FMIF's related party loan to the MPF safe?
 
LM MPF : How Do They Do It?

Notes:
All LM FMIF loans are in arrears by at least 90 days (page 10 of latest RG45)
All LM FMIF loans are at 100% LVR (page 8 of latest RG45)

Michael West (SMH), in his (now) famous article on LM, "A Man With Some Many Hats ...", said (in part):

"The celebrity numbers surrounding Maddison are just as impressive as the celebrities themselves. Over $217 million of the $370 million in the LM Managed Performance Fund is committed in this single project yet it appears that investors have only a second mortgage.

Suncorp is owed $22 million ahead of investors in the LM Managed Performance Fund and of the $217 million presently owed by Maddison, $101 million is capitalised interest on the loan. The acquisition cost of the land was $76 million.

Interest is paid to Suncorp, distributions are paid to investors, and management fees paid to LM. These are now five per cent but can rise as high as 10 per cent each year."

How do they do it?

Why is the FMIF's loan to the LM MPF maxed out to 100% LVR? (see "notes" above)

Why is the FMIF's loan to the LM MPF in arrears by at least 90 days? (see "notes" above)

Now, why do I ask these questions? Well, it's because the MPF is paying financial advisors a fee - it's paying the manager a management fee - it's paying a % return (since it's still open) - it's repaying bank interest (and repayments?) (to Suncorp as alleged by Michael West) - I expect MPF expenses are being paid - yet, it's at least 90 days in arrears and maxed out with a 100% LVR on a loan from the LM FMIF !

All this in circumstances whereby members of the LM FMIF have their hands out for a return of capital !

To my mind, it seems the LM FMIF is standing behind the MPF - I couldn't imagine LM FMIF members would be happy about this - but hey, that's only my opinion.

Michael West added, "LM rejects this. Its own valuation must have grown a lot lately to justify its further lending. Last September, the largest loan in the fund was $142,155, 456. This had risen to $191 million in July, $211 million in August and to $217 million in September."

The latest from LM (31 December 2012), the loan had grown to $233,838,04 (up about $16m since September 2012)
http://www.lmaustralia.com/Downloads/Portfolio-updates/MPF_portfolio_update.pdf

If the MPF is in such great shape, why aren't repayments on the FMIF's loan brought up to date? Why isn't the loan LVR on the FMIF's loan brought back in line with the PDS?

Too many hats?
 
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