LM Investment Management - Lack of confidence

[ASICK]

The Feeder Funds Re-Invested



Distributions paid to the feeder funds : $16,904,211 (page 21)
Reinvestment paid from the feeder funds : $15,964,355 (page 22)

At a guess, the balance was used for fees and fund expenses.

Give with the one hand - take with the other.

 

[ASICK]

Re: The Feeder Funds Re-Invested

View attachment 50794

Distributions paid to the feeder funds : $16,904,211 (page 21)
Reinvestment paid from the feeder funds : $15,964,355 (page 22)

At a guess, the balance was used for fees and fund expenses.

Give with the one hand - take with the other.

There are just so many things worth commenting on, like:

"All feeder funds have reinvested back into the scheme during the period. Compliance with the Trust Deed and the Corporations Act in relation to these distributions is a matter of legal interpretation and the Responsible Entity believes it has an arguable position to support the declaration as to these distributions being fair and reasonable to all classes of unitholders."

"Distributions paid and payable (2012)
Class A - Nil
Class B - $16,904,211
Class C - $120,178"

I, for one, would like to see the "arguable position".

Actually, it'll be interesting if Trilogy takes a shot at LM about the reinvestment of the bulk of the LMWFM's distribution from the LMFMIF - if I were Trilogy, I'd at least be looking at the board's minutes of meetings to see the justification for the reinvestment in the circumstances.

Expenses - taking a good look over the 2012 LMFMIF accounts is like reading numbers out of a telephone book:
(2012) , (2011)

Bank expenses : $8,593,798 , $14,072,798
Auditor : $559,905 , $415,880
Other expenses : $197,109 , $65,650
Legal expenses : $523,012 , $407,260
Management fees : $9,103,864 , $10,997,188
LM expenses : $28,983 , $791,164
More LM expenses : $38,524 , nil
LM (as receiver) : $4,817,414 , $5,381,516
Custodian : $77,904 , $112,234
Advisor com. : $2,165,236 , $2,090,475
Realised FX losses : $36,203 , $1,338,500
Unrealised FX loss : $167,394 , nil
More FX unreal. : $145,432 , nil
Impairments : $99,144,122 , $84,873,703

It was too scary to go back to 2009.

LM takes its management fee as a reward for failure - and then, on top of that fee, takes yet another fee as "receiver" as icing on the cake. These "receiver" costs and other costs are unlikely to be recovered given the state of the loans - just "water flowing out of the bath" (so to speak).

LM investors in the LMFMIF now left (as at 31 October 2012) with all loans in default and at 100% LVR.

Look at the legal fees - incredible.
Crikey, the auditor is doing very well indeed.
and those FX losses - why are they being incurred in a mortgage fund?
even the other expenses are scary.

IMO the whole thing seems to be a real mish-mash.

I wonder what the manager does for its management fee? seems to me that it doesn't include chasing up on bad loans, that's a job for a relative .. goody, more fees.

 

[ASICK]

"Oils Aint Oils Sol"



It took me a little time to get the gist of what's happening here.

About $17m was paid as a distribution from the entire FUND (class A - direct investors in the FMIF, B - the feeder funds, and C - foreign currency direct investors) and paid to the sole benefit of class B unit holders (the feeder funds). No distributions were paid to Classes A and C (the direct investors).

About $16m of the about $17m was reinvested in favour of Class B unit holders (the feeder funds).

As a result of the transactions, the feeder funds held significantly more equity and seems to have been paid significantly more cash in redemptions (at $1.00 / unit - wow!) and in distributions.

Look at the above excerpt and work it out for yourselves - see how much has gone where.

Very interesting indeed. (don't forget to take a look at the 2011 figures (above) - just as interesting).

 

[RODENT69]

Just to add further confusion re so called "Distributions" note this comment to me today from LM when I told them Trilogy advised that they had not received any money for the WFMIF despite LM clearly advising EVERYBODY they had paid out 2 catch up payments

The wholesale fund has not received any capital distributions as yet and nor have any other investors in the FMIF. All investors are being treated fairly .
It would seem that the facts probably would have got in the way of their response.

This attachment LM view of Trilogy was attached to Email replyView attachment trilogy-facts-flyer.pdf

 

[ASICK]

What's In A Name?

Just to add further confusion re so called "Distributions" note this comment to me today from LM when I told them Trilogy advised that they had not received any money for the WFMIF despite LM clearly advising EVERYBODY they had paid out 2 catch up payments

The wholesale fund has not received any capital distributions as yet and nor have any other investors in the FMIF. All investors are being treated fairly . It would seem that the facts probably would have got in the way of their response.

This attachment LM view of Trilogy was attached to Email replyView attachment 50809

Ah : the distinction - (1) the mooted income distributions, or as I would call them the "distributions", and (2) capital distributions.



"First Mortgage Fund investors have been paid two distributions in the past month" - and LM cites the article as published in the Gold Coast Bulletin on 26 January 2013. I'd reckon they're referring to income distributions.

I'm perplexed how they'd make such income distributions given the fund is making a massive loss.

Is there an argument that such payments to LMFMIF members are not income, but capital and that members aren't being treated equally?

 

[Mysteryman]

Re: What's In A Name?

Ah : the distinction - (1) the mooted income distributions, or as I would call them the "distributions", and (2) capital distributions.

View attachment 50813

"First Mortgage Fund investors have been paid two distributions in the past month" - and LM cites the article as published in the Gold Coast Bulletin on 26 January 2013. I'd reckon they're referring to income distributions.

I'm perplexed how they'd make such income distributions given the fund is making a massive loss.

Is there an argument that such payments to LMFMIF members are not income, but capital and that members aren't being treated equally?

My understanding from the information we have had from LM is that the are paying catch up income to the main fund and not making capital distributions at the moment. However they hope to make capital distributions at the end of the third quarter.

However the say of the wholesale fund the following:

"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. "

So what wholesale fund will be getting - who knows whether it will be income distribution plus capital, one or the other or just a popsicle! However in other communication from them to me they stated that it will be paid to the wholesale fund at the end of the third quarter. I hope the popsicle has not melted by then.

Asick, I found your last few comments very interesting. However, to someone like myself who is not an accountant, I'm not sure whether you are trying to say this rinky dink with our money concerning distributions being reinvested is illegal, skating close to the wind or plain unfair to the wholesale fund. Is this something that Trilogy should be looking at very closely or indeed something that should be brought to ASIC's attention. If you feel there are illegilties in play, then maybe something can be done.

 

[RODENT69]

Re: What's In A Name?

Ah : the distinction - (1) the mooted income distributions, or as I would call them the "distributions", and (2) capital distributions.

View attachment 50813

"First Mortgage Fund investors have been paid two distributions in the past month" - and LM cites the article as published in the Gold Coast Bulletin on 26 January 2013. I'd reckon they're referring to income distributions.

I'm perplexed how they'd make such income distributions given the fund is making a massive loss.

Is there an argument that such payments to LMFMIF members are not income, but capital and that members aren't being treated equally?

ASICK the answer is clearly yes, more to come on this subject.

PS thanks very much for the time an effort you have expended in pulling the LM performance, or lack of, apart especially in recent days. Sometimes it takes us mere mortals a while to get through it to your level of understanding, but it really is appreciated by this LM investor, and I suspect many others.

I have escalated the B.S I have been receiving from LM and Trilogy re so called Distributions to the most Senior Manager in BT asking that person to sort it out and tell this poor little investor who is telling the truth, I strongly suspect neither!!

So far everything I have asked of that Manager has been answered, and right now they are just as confused as me, so got help us all if a miracle happens in March 2013 and LM actually does start to distribute Capital Pro-rata payments to investors, image the mess then.

Clearly the Drake website is all about self promotion of him? and LM, although as you rightly say he has nothing to crow about re the FMIF and its feeder funds.

 

[ASICK]

Re: What's In A Name?

ASICK the answer is clearly yes, more to come on this subject.

PS thanks very much for the time an effort you have expended in pulling the LM performance, or lack of, apart especially in recent days. Sometimes it takes us mere mortals a while to get through it to your level of understanding, but it really is appreciated by this LM investor, and I suspect many others.

I have escalated the B.S I have been receiving from LM and Trilogy re so called Distributions to the most Senior Manager in BT asking that person to sort it out and tell this poor little investor who is telling the truth, I strongly suspect neither!!

So far everything I have asked of that Manager has been answered, and right now they are just as confused as me, so got help us all if a miracle happens in March 2013 and LM actually does start to distribute Capital Pro-rata payments to investors, image the mess then.

Clearly the Drake website is all about self promotion of him? and LM, although as you rightly say he has nothing to crow about re the FMIF and its feeder funds.

Actually, it's my pleasure to do the work - I enjoy it.

Although I really do hate Trilogy, I don't believe Trilogy has any power to get any more information from LM than any other investor in the LMFMIF. In my view, it's quite the shame that the only two entities you guys have buzzing around your funds are Trilogy and LM.

As I see it, Class B investors (the feeder funds) have had an advantage in equity over the class A and C (the direct investors in aust & foreign currencies). Of course, that's only my opinion, but it seems to me that it's not difficult to determine merely by looking at the fund's 2012 annual report (see the excerpts in previous postings).

At stated by LM in the fund's 2012 return, LM has formed the view that it's able to present a legal argument that it's entitled to distribute about $17m to the class B investors (feeder funds). Lm then reinvested $16m of the $17m at the very same time no reinvestments are occurring for ordinary members (in 2012).

There are three issues that raise my eyebrows, (1) the actual distribution of $17m to class B members (feeder funds), (2) the reinvestment of $16m from class B members (feeder funds), and (3) the so-called distributions paid of late. I'm not forming an opinion about whether anything is legal or not legal because I'm not aware of all the facts. All I say is that the issues cause me to raise my eyebrows.

It seems to me that since the fund was frozen in 2009, an independent manager of the Wholesale fund would not have permitted the $16m to be reinvested in the frozen LMFMIF (if the manager was able to make the decision) - after all, it wouldn't seem to be working in investors' interests. Why was the $16m reinvested when no other unitholder in the fund reinvested? (see page 22 of the fund's 2012 annual report). The feeder funds in fact have received quite a large distribution, but it's been reinvested - I'm sure Trilogy will be looking at all of that very closely.

I think it's all very nice to say that distributions (of profit) were payable or "promised" (as some have put it), but, IMO, the reality is that any payment today is mere capital. I wouldn't have thought it possible to say "well, I promised you a distribution of profit (as income to the investor) - there's no profit, so here it is from capital". In fact, the fund's annual return discloses a net loss of $88.6m.

Note: Sometimes I use the term "income distributions", but I mean distributions of profit which are deemed as income in the hands of investors.

 

[ASICK]

Re: What's In A Name?

... Asick, I found your last few comments very interesting. However, to someone like myself who is not an accountant, I'm not sure whether you are trying to say this rinky dink with our money concerning distributions being reinvested is illegal, skating close to the wind or plain unfair to the wholesale fund. Is this something that Trilogy should be looking at very closely or indeed something that should be brought to ASIC's attention. If you feel there are illegilties in play, then maybe something can be done.

To clarify what I mean, I'll say this: Members of the same class must be treated equally - Members of different classes must be treated fairly. I'm merely opining about whether a payment is one of profit or capital - sometimes things are not as black/white as members might assume. I'm also opining about how it's possible to distribute $17m when the fund's made such a massive loss ($88.6m). I'm also opining about how the manager of the LMFMIF is able to reinvest $16m of that when LM didn't cause ordinary investors (class A & C) to reinvest.

In relation to the $17m distribution to class B but not to class A & C, LM stated that they believe they have a strong legal argument for making a $17m distribution to class B members (feeder funds). LM reinvested $16m of that $17m. LM have paid catch-up distributions to class A and C members, but not to class B.

The only way to test the strength of that argument is for LM to be challenged - the only ones able to do that are Trilogy and/or ASIC. If neither challenge then LM's argument must be strong.

It's been reported that Trilogy has raised certain matters with ASIC - I have no idea what Trilogy has complained to ASIC about.

However, if a fund member feels there's something worth complaining about, then the right thing to do is to make a complaint to ASIC - if there's no legs in the complaint, then ASIC will let you know.

Do a google search for ASIC's complaint service if you wish to make a complaint.

 

[Mysteryman]

Re: What's In A Name?

To clarify what I mean, I'll say this: Members of the same class must be treated equally - Members of different classes must be treated fairly. I'm merely opining about whether a payment is one of profit or capital - sometimes things are not as black/white as members might assume. I'm also opining about how it's possible to distribute $17m when the fund's made such a massive loss ($88.6m). I'm also opining about how the manager of the LMFMIF is able to reinvest $16m of that when LM didn't cause ordinary investors (class A & C) to reinvest.

In relation to the $17m distribution to class B but not to class A & C, LM stated that they believe they have a strong legal argument for making a $17m distribution to class B members (feeder funds). LM reinvested $16m of that $17m. LM have paid catch-up distributions to class A and C members, but not to class B.

The only way to test the strength of that argument is for LM to be challenged - the only ones able to do that are Trilogy and/or ASIC. If neither challenge then LM's argument must be strong.

It's been reported that Trilogy has raised certain matters with ASIC - I have no idea what Trilogy has complained to ASIC about.

However, if a fund member feels there's something worth complaining about, then the right thing to do is to make a complaint to ASIC - if there's no legs in the complaint, then ASIC will let you know.

Do a google search for ASIC's complaint service if you wish to make a complaint.

Thank you ASICK for your well reasoned opinions. You have been a great deal of help. I think I may well follow up your advice on all this firstly with Trilogy to see what they are doing about it and also put in a complaint to ASIC. After all we have nothing to lose.

 

[ASICK]

ASIC IS NOT A PRUDENTIAL REGULATOR

From experience, members really should read the 2012 annual report and the recent RG45.

You're entitled to raise concerns with ASIC - although it's a complaint form, you're able to raise your concerns (as well as complaints).

The funds are your funds, not LM's. It's your money invested and it's your money that's been lost.

I've raised the issues that I'd be concerned about if I was an LM investor.

It's up to each of you to work it out for yourself, and if you find issues which concern you, then write to ASIC about them, or alternatively, do nothing: it's your choice.

If you think everything is okay, then good and well.

Note: ASIC is interested in form (and law), not substance: ASIC is not a prudential regulator. [as many PFMF members have been told by ASIC itself]

 

[ASICK]

LM MPF

http://www.moneymagik.com/LMFMIF_at_a_glance.jpg

I put this graphic on the website just in case any updating is required.

I did the graphic because it's easier to see the state of the fund.
If there's an errors, please let me know - they will be corrected.

 

[RODENT69]

Re: What's In A Name?

Thank you ASICK for your well reasoned opinions. You have been a great deal of help. I think I may well follow up your advice on all this firstly with Trilogy to see what they are doing about it and also put in a complaint to ASIC. After all we have nothing to lose.

Mysteryman I too am interested in approaching, ASIC however remember we still don't have the Audited Statements for our Fund -WFMIF, I would like to read this first

I seem to recall that the issue of paying a distribution and reinvesting was done last year also, I will check
Meanwhile FYI I am invested in the WFMIF APIR CODE LMI0007AU which for a laugh is the Flexi Account, so called At Call, another laugh. You would be aware there are other types of Fixed Term Investments under the WFMIF also.

Also its confusing re Investment class, with Types A,B,C in FMIF and only A&B in the WFMIF

As ASICK says we should be concerned if so called Distributions from the FMIF to the WSFMIF were reinvested in the FMIF just at the whim of LM. I wonder if its allowed under the Constitution of the Fund? I certainly would like to see the justification, especially as ASICK says given the substantial and on going losses for the funds.
And where is the difference in $ out and back in accounted for.

I certainly think we should write to ASIC asking their views. I have a ASIC contact, after I see the Audited Statements for the WFMIF and go back and do some other cross checking with earlier reports, and the PDS I will sound him out, before formalising a complaint.

Interested in your views?

 

[ASICK]

This was posted on the Equititrust thread:

http://www.goldcoast.com.au/article/2013/02/01/446521_gold-coast-news.html

"The three-level luxury villas were originally built by Brisbane developer Matthew Thomas and sold last night for between $1.1 million and $1.25 million, a steep drop from the $3.95 million they started at when they first hit the market."

Scary?

 

[RODENT69]

Re: LM MPF

http://www.moneymagik.com/LMFMIF_at_a_glance.jpg

I put this graphic on the website just in case any updating is required.

I did the graphic because it's easier to see the state of the fund.
If there's an errors, please let me know - they will be corrected.

ASICK thanks for the Graphic its very easy to understand - as they say a picture speaks a thousand words!!

FYI over the last few years, as a person who reads but does not always understand completely the Funds Audited statements, I often find it difficult to identify the real "Income " for a Fund

To explain simply Income - Expences = Profit or Loss. So using your considerable skills can you draw another picture that explains for the FMIF FY 2012 the Monies IN and Monies OUT in simple terms- I realise some may be funny money but it may be of value to us Investors

Simple example $32 mil Income- $120 Expences = $105 Loss

I am sure you will understand were I am coming from - Helicopter view

Also see next post

 

[ASICK]

Re: LM MPF

ASICK thanks for the Graphic its very easy to understand - as they say a picture speaks a thousand words!!

FYI over the last few years, as a person who reads but does not always understand completely the Funds Audited statements, I often find it difficult to identify the real "Income " for a Fund

To explain simply Income - Expences = Profit or Loss. So using your considerable skills can you draw another picture that explains for the FMIF FY 2012 the Monies IN and Monies OUT in simple terms- I realise some may be funny money but it may be of value to us Investors

Simple example $32 mil Income- $120 Expences = $105 Loss

I am sure you will understand were I am coming from - Helicopter view

Also see next post

First, I'm not an accountant - my only accounting experience is from high school many years ago, and from operating my own business. For advice you can rely on, please talk to your accountant.

Actually, I"d say it's impossible to identity the REAL income for the fund because these managers apply the accruals accounting method. I'm sure accruals accounting is useful where certainty is assured, but in these MIS/MIFs, it's a nightmare for investors, and a real bonus for managers.

Managers gain fees on accrued interest - but if those accruals aren't eventually converted into cash, then investors lose out. Generally, investors in MIS/MIFs lose in two main areas, (1) overvalued assets, (2) written off accrued interest.

An extreme example re: accruals - http://www.understand-accounting.net/Accountingfrauds.html

If you have a look at the first item under heading "Income" (on page 8 of the fund's 2012 return), you'll note:

"Interest Revenue - Mortgage Loans: 2012: $31,608,319 2011: $35,604,341"

The figures represent cash income as well as accrued income - Impressive incomes?

Nope, I wouldn't think so - given the extensive accruals taking place in the fund, all (or most) of those amounts may very well be accrued interest (NOT cash) - that's why I say a fund is "pumped" with accruals - such accruals build up the value for the manager to make fees, but do not necessarily convert into cash able to be returned to investors.

Accruals are what the manager estimates the fund is able to receive, and it's been my experience that managers seem to be more than optimistic when it comes to making estimates. Accrued interest is an asset: I'd prefer to call it "Pie in the Sky".

First, one has to be skeptical of the "Income Revenue" figures. In many accounts its possible to determine the actual cash received in the "Statement of Cash Flows" (page 11 of FMIF's 2012 annual return).

For the FMIF only $404,955 as a separate amount, and that's probably only bank interest received. The fund does not disclose how much cash is received from mortgage loans - Trilogy does disclose such information in the PFMF's accounts - and the difference between the accruals and actual cash is a shocker.

I note a figure is disclosed for "receipts for settled mortgage loans", but one would need a complete analysis of that figure to see how much interest (if any) was received in cash on those loans in that year. If one thinks about the massive loss on the Cairns asset, and given the ongoing losses disclosed recently on auctions, then I'd doubt whether any of the recoveries include cash to make good accruals.

As I see the accounts:

1. The Mortgage Loan Interest Receivables are probably all accruals.
2. The Receipts for Settled Mortgages Loans probably didn't recover much (if any) accrued interest.
3. I'll be pulling $30m off the fund's value for 2012 - and probably for 2011 ($60m in total)
4. Given the market, good luck with translating assets' valuations in cash without significant loss.

I note also that Note 7 to the accounts (page 23 of the fund's 2012 accounts) does not distinguish between interest receivables (accruals) and loans - so, impairments/write offs to receivables aren't noted separately. The PFMF's accounts show the distinction between receivables and loans.

I think if LM disclosed how much of the fund is receivables, how much receivables have been impaired, and how much receivables were written-off, I get the impression you guys (and girls) would be shocked.

"Oils Aint Oils Sol" - accrued interest may very well be an asset on which the manager makes a buck, but in your fund, those accruals are unlikely to translate into cash in fund investors' pockets.

The accruals accounting method is completely legal, but IMO, the method should never have been permitted to be applied to MIS/MIFs in Australia, although I'm very, very sure that managers would argue quite the opposite.

 

[ASICK]

The Overflow of Loss

On top of the accruals which bloat the fund, there's the overflow that's not deemed recoverable:
LM FMIF 2012 annual return, page 25, "Interest on arrears loans is suspended and not brought to account when the Responsible Entity considered that the accounts are not ultimately recoverable from the sale proceeds of the property. The amount of suspended interest as at 30 June 2012 totalled $119,557,492 (2011: $87,077,591)" - an increase of $32,479,901 from 2011 to 2012 !!!


Read about suspension of interest here:
http://www.wikinvest.com/stock/Lloyds_Banking_Group_(LYG)/Suspended Interest Non-performing Lending

For a personal view from the man from LM, read here:
http://www.peterdrake.com.au

http://www.moneymagik.com/LMFMIF_at_a_glance.jpg
(now updated with direct investor information)

 

[ASICK]

Related Funds Equity in LMFMIF

I think that ALL the values attributed to the related "feeder" funds are incorrect.

The values have been calculated by reference to $353m (a figure closer to gross assets), not the $288.98m attributable to unitholders.

LM FMIF annual return, page 31, note 10, "unitholder investing activities".

I think the total should be about $143.29m, not $166.34m.

Have I made a mistake?

 

[ASICK]

It Happens

I think that ALL the values attributed to the related "feeder" funds are incorrect.

The values have been calculated by reference to $353m (a figure closer to gross assets), not the $288.98m attributable to unitholders.

LM FMIF annual return, page 31, note 10, "unitholder investing activities".

I think the total should be about $143.29m, not $166.34m.

Have I made a mistake?

Assuming the percentages are correct, then I think the apportionments should be about:

LM Currency Protected Australian Income Fund = $71.53m (LM says $87.47m)
LM Institutional Currency Protected Australian Income Fund = $5.49m (LM says $6.7m)
LM Wholesale First Mortgage Income Fund = $59.02m (LM says $72.17m)
Total about $136m, or 47.07% of $289m. LM says $166.33m - Difference = - $30.3m, or - 18.22%.

I think someone calculated by reference to gross assets rather than net assets (attributable to unitholders).

(all figures rounded for ease of calculation).

 

[Mysteryman]

Re: What's In A Name?

Mysteryman I too am interested in approaching, ASIC however remember we still don't have the Audited Statements for our Fund -WFMIF, I would like to read this first

I seem to recall that the issue of paying a distribution and reinvesting was done last year also, I will check
Meanwhile FYI I am invested in the WFMIF APIR CODE LMI0007AU which for a laugh is the Flexi Account, so called At Call, another laugh. You would be aware there are other types of Fixed Term Investments under the WFMIF also.

Also its confusing re Investment class, with Types A,B,C in FMIF and only A&B in the WFMIF

As ASICK says we should be concerned if so called Distributions from the FMIF to the WSFMIF were reinvested in the FMIF just at the whim of LM. I wonder if its allowed under the Constitution of the Fund? I certainly would like to see the justification, especially as ASICK says given the substantial and on going losses for the funds.
And where is the difference in $ out and back in accounted for.

I certainly think we should write to ASIC asking their views. I have a ASIC contact, after I see the Audited Statements for the WFMIF and go back and do some other cross checking with earlier reports, and the PDS I will sound him out, before formalising a complaint.

Interested in your views?

Hi Rodent

Such a lot has been added to this string since I last checked in - load of reading to catch up on. i am invested in LMI0007AU, like you and also the LMI0008AU fund.

I think it is definitely worth waiting on the finalization of the annual report for the wholesale fund 2012. My latest communication with them says it will be a few more weeks before it is signed off. The original promise of early January seems to be stretching out, but maybe they have found plenty to take issue with, themselves. So no point in jumping the gun and complaining to ASIC until we receive that. However, if you have a contact, I would most interested to hear their view.

Will keep adding as and when I have something new to report.