LM Investment Management - Lack of confidence

[k.smith]

Re: LM Investment Management - RG45 Extraordinaire

An update on the RG45 issue - which I find completely extraordinary (but I guess not really surprising given the continuing littany of LM disappointments)

Under ASIC Regulatory Guide 45, LM is required to provide updated RG45 disclosures at least every 6 months or more frequently to explain if material changes occur earlier.

The latest RG45's for the FMIF and CPAIF (and I assume WFMIF) were issued in August 2011, with the accompanying Portfolio Update as at 31 May 2011.

When I asked to be provided with a copy of the February 2012 updates, LM advised that "ASIC only requires RG45 documents to be completed as and when there has been a 'material change' to the funds, the last time was in August 2011."

When I asked LM to reconsider that extraordinary advice (since there had clearly been many material changes since May 2011/August 2011 including LM's radically changed strategy; arrangements with Deutsche Bank; write-down in unit values; liquidity position; LVRs etcetc), LM simply said "We are preparing an updated RG 45 to accompany the further financial and asset information to be sent to investors with the voting information and their invitation to elect investment allocations".

I find it very disturbing that financial information of critical interest to investors has not been updated for over a year.

Of even more concern to me is that in May 2012 LM was asking investors approve major changes to the FMIF Constitution (with profound implications for their investments) without the benefit of updated/current information.

I also think it is completely unacceptable for investors to now have to wait another 2 or 3 months before receiving such information (assuming the new vote occurs in August/September) 2012.

I have raised these concerns with LM but don't hold much hope of success since an email to me from the CEO (Mr Drake) himself was that "we are hardly in the mood to respond to your ongoing deluge of demands".

Is this behaviour typical of that exhibited by REs of other frozen funds????

Any tips/suggestions on what we poor investors can do to best protect our interests?

Can you get a copy of the unitholder registry ?

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s173.html

It would seem to me that as long as the request falls in line with s.173 (3) (a) and the information in the registry is used in compliance with the act...???

Schedule 4 (link below) sets out the fees involved...

http://www.austlii.edu.au/cgi-bin/s...tml?stem=0&synonyms=0&query=prescribed amount

 

[ASICK]

LM Investment Managment Ltd. letter to investors dated 12 June 2012

Well, I thought I'd seen it all. I've just read the letter LM sent to investors - what a load of rubbish.

The law mandates that an investor is entitled to obtain a copy of the fund's members' registry for the purpose of writing to investors and expressing an opinion as well as to seek the opinions of others. Without such a course of action, members could not get together and pursue common goals such as changing a manager or amending the fund's constitution.

Yes, investors are all strangers to each other until they get to know each other - I most certainly hope that members of the LMIF get to know each other sooner rather than later - get a copy of the registry - talk to each other - and do what you feel you have to do.

Good luck with it.

 

[dinga]

Re: LM Investment Managment Ltd. letter to investors dated 12 June 2012

Well, I thought I'd seen it all. I've just read the letter LM sent to investors - what a load of rubbish.


The law mandates that an investor is entitled to obtain a copy of the fund's members' registry for the purpose of writing to investors and expressing an opinion as well as to seek the opinions of others. Without such a course of action, members could not get together and pursue common goals such as changing a manager or amending the fund's constitution.

Yes, investors are all strangers to each other until they get to know each other - I most certainly hope that members of the LMIF get to know each other sooner rather than later - get a copy of the registry - talk to each other - and do what you feel you have to do.

Good luck with it.

Well here it is - must admit I was astounded when I opened this email last night.

For me, this is proof positive that LM has completely lost the plot (perhaps "LM" is short for 'Lost Marbles' as well as 'Lost Money'). Such an hysterical and absurd response to investors seeking to exercise their clearly specified rights under the Corporations Act really makes me wonder if LM's motivations are solely about protecting their huge management fees, or is there something much larger in play?

Dunno - but stay turned for the next thrilling update on developments - and as always, comments/suggestions really welcomed.


12 June 2012

RE: Investor Details and the Australian Privacy Act

We are writing to inform you of what LM believes to be a serious bypass of the Privacy Act that exposes your personal salutation, address and investment details to unknown parties within, and from outside of Australia.

As a Responsible Entity (Fund Manager), we are obliged to act in strict adherence to the Australian Privacy Act. We employ processes of separation of information, secure password access and office shredding to ensure that investor information and account records are kept in strict confidentiality.

However, there is a component of Corporations Law that enforces us (the Fund Manager), to hand over the Fund register to any person who asks in the correct manner. That means that we are obliged by law to pass over to someone in or out of Australia, your personal information such as name, address and investment details.

The applicant must apply for the Fund register with the intention of using the information for a ‘proper purpose’. That purpose may be to write to investors and propagate a view that the Fund Manager has got it all wrong, and that a friend of associate of theirs (another manager) could do it a lot better.

Any person who goes to the bother of gaining possession of a register with all of your information will generally have a personal vested interest.

We are now concerned that if this information is passed on to Australian or non-Australian entities, it is not possible for the Australian government to ensure that this confidential and private information is used for ‘proper purpose’.

For you to receive a letter from a stranger who has your personal confidential details is strange, and abhorrent to say the least.

Your personal confidential details in the hands of an unknown Australian or non-Australian resident can lead to identity theft, or the impersonation of LM to gain further confidential details such as bank account and other identification information.

LM is making application to various government bodies with an urgent agenda of having the ‘loophole’ in the Privacy Act re-examined and amended.

If you do receive unsolicited emails or letters from persons unknown to you, who appear to have accessed your personal confidential information, would you please forward the correspondence to an LM office as a matter of urgency, and contact your financial adviser.

Thank you.


Yours faithfully,


LM Investment Management Ltd
The global pathway to Australian Investment Solutions

 

[ASICK]

The letter opens, "We are writing to inform you of what LM believes to be a serious bypass of the Privacy Act that exposes your personal salutation, address and investment details to unknown parties within, and from outside of Australia." - the person requesting a copy must disclose his/her name and further disclose a legal 'use' of the registry before acquiring it. The person is liable for the use of the copy.

"As a Responsible Entity (Fund Manager), we are obliged to act in strict adherence to the Australian Privacy Act. We employ processes of separation of information, secure password access and office shredding to ensure that investor information and account records are kept in strict confidentiality." - yes, that is true.

"However, there is a component of Corporations Law that enforces us (the Fund Manager), to hand over the Fund register to any person who asks in the correct manner. That means that we are obliged by law to pass over to someone in or out of Australia, your personal information such as name, address and investment details." - and this is true too, and it was the case when LM first began dreaming up its scheme - but there's wasn't any concern to tell investors about this particular issue UNTIL A MEMBER REQUESTED THE REGISTRY a number of years later!

"The applicant must apply for the Fund register with the intention of using the information for a ‘proper purpose’. That purpose may be to write to investors and propagate a view that the Fund Manager has got it all wrong, and that a friend of associate of theirs (another manager) could do it a lot better." - yes, true, and the exampled purpose could very well be the case.

"Any person who goes to the bother of gaining possession of a register with all of your information will generally have a personal vested interest." - yes, that's true - and that vested interest could very well be the best interests of his/her investment in the fund. If an individual is prepared to spend the money to gain a copy of the registry it probably is the case that he/she is concerned about his/her investment in the fund.

"We are now concerned that if this information is passed on to Australian or non-Australian entities, it is not possible for the Australian government to ensure that this confidential and private information is used for ‘proper purpose’." but concern wasn't disclosed when members entered into the fund, only after a member requested it with a view see a change of manager in the fund.

"For you to receive a letter from a stranger who has your personal confidential details is strange, and abhorrent to say the least." - well, it might be strange to LM, but it makes complete sense to those who understand that the information was NEVER confidential in any event. It's a false premise to suggest the information was ever confidential - part of the deal when an investor signs up to an entity such as a listed managed fund is that the investor's information is disclosed to any buyer of the registry.

If the 'stranger' doesn't disclose his/her name, then it would be more than strange, it would a real concern, and it's happened recently in the PIF - but members have a clear choice with such a communication, and that's to put it in the rubbish bin.

However, if the stranger discloses that he/she is a member of the fund and is concerned about his/her investment in the fund, then as intended by the law, the process of 'getting together' begins and members have a chance for fight for what they regard is the best interests of their respective interests in the fund - and that very well might be to oust the manager and install a mangaer who will do the job for less - perhaps MUCH less - maybe for less than a third of the current top limit of 5.5%!

The false premse that the information is "confidential" continues along its merry way, "Your personal confidential details in the hands of an unknown Australian or non-Australian resident can lead to identity theft, or the impersonation of LM to gain further confidential details such as bank account and other identification information." - again, a concern not dealt with in the PDS, nor at any other time up until a member of the fund sought a copy of the registry. An investor is more at risk from having mail scooped from the mailbox!

Further, while LM spruiks concern about "confidential information", it doesn't offer to send the letter out at the fund's expense to all members - LM raises concerns (albetit that such concerns are raised subject to a false premise), yet offers no solution which would allow members of the fund to communicate freely with each in order to canvass votes for any intended meeting - LM wants to remain gatekeeper and in control.

Wouldn't it be terrible if members of a manager fund could never communicate with other members of the fund - the manager would be free (subject to law) to do as it pleases without any organized opposition to its schemes and plans - and we've all seen how much investors have lost even when manager's comply with the law!

"LM is making application to various government bodies with an urgent agenda of having the ‘loophole’ in the Privacy Act re-examined and amended." - that's nice - and let's hope LM is raising up its undertaking to mail investors on behalf of other members in its solution to supposed problem based on the false premise that members "confidential information" is disclosed by way of the purchase of the fund's members' registry - but my guess it that such a solution isn't in any of the "applications made to various government bodies".

"If you do receive unsolicited emails or letters from persons unknown to you, who appear to have accessed your personal confidential information, would you please forward the correspondence to an LM office as a matter of urgency, and contact your financial adviser."

Well, that's a fair statement except to say "unless the emails or letters are from a member of the fund who has bought a copy of the fund's registry" - ah - tell LM as a matter of urgency anyway - and phone up that financial adviser (isn't he/she the one who convinced you to invest in LM's fund?) - I'm sure they'll love to hear from you.

Get the registry - contact each other - protect what's left of your investments as you see fit and find out what others think - get together - that's your right!

For the record, the minimum information given out is - name of investor (super fund/company/person), address, and unit holding. I'm sure everyone's mailbox will offer up much more. In fact, think about how much personal information is given to someone in Mumbai, KL, or Manila when phoning up about telephone, electricity, or credit card accounts!

 

[dinga]

Re: LM Investment Management: It's Official - The LM Crock is Full

Urban Dictionary extract says "crock of ****" More politely known as "a pile of poo", the term "a crock of ****" derives from an ancient Roman custom that coincidentally took place in Roman times. It referred literally to a pot into which people would excrete if they were particularly bored by whichever freelance philosoper happened to be talking rubbish at the time. The Roman empire employed crock-monitors who were each assigned to a philosopher, and it was their job to monitor the pot (or crock). Should the crock become full, it would be presented to the philospher, who was obliged, by law, to announce that it bore a remarkable resembence to himself, thus proclaiming he was full of crap and was, in fact, talking a crock of ****.
"I am talking a crock of ****", Socretes 429 BC

ASICK has pretty well nailed the misleading rubbish in LM's letter dated 12 June 2012, line by line and fact by fact. I'd just add the following comments:

1. There is no 'loophole' - Privacy Act includes requirements concerning the circumstances under which personal information about an individual may be used and disclosed. You'll be amazed to hear that one such circumstance is where "the use or disclosure is required or authorised by or under law". As noted by ASICK, and indeed apparently accepted in a somewhat disguised manner by LM, the Corporations Act specifically requires such disclosure, subject to very reasonable conditions and purposes as briefly outlined.

2. While I guess anything is possible, in my view it beggars belief that anyone could seriously promote the core matters contained in the LM letter. Heaven forbid, but perhaps the huge management fees are something more of a consideration....

Today I sent the following email to LM: Putting aside the transparent nonsense in the below email, is LM now going to immediately provide me with the requested copies of the CPAIF and FMIF Members' Registers, in accordance with my rights under the Corporations Act?

Am hoping against hope that LM is still not "hardly in the mood to respond..." as the CEO advised me on 4 June 2012

 

[ASICK]

Re: LM Investment Management - Registry Request

"Managing registry access requests

Many managers have sought to deflect this activity on the basis of privacy concerns. Generally, this defence has proved weak and the Federal Court has ordered fulfilment of requests in accordance with the relevant governing law – the Corporations Act. The list of those who have been dragged before the Federal Court include AXA, Challenger, Clime Asset Management, LM Investment Management and Wesfarmers (who settled on the steps of the Court).

The Corporations Amendment (No. 1) Act 2010 has introduced provisions whereby issuers of securities under the Corporations Act may limit certain access to member registers to protect investors. However, these amendments are restricted in their application.

In addition, the amendments introduced new obligations with regard to computer access that most issuers would be unprepared for." (emphasis added)

http://www.foxrock.com.au/media/FoxTweet1.pdf

 

[ASICK]

Re: LM Investment Management - Registry Request

"Managing registry access requests

Many managers have sought to deflect this activity on the basis of privacy concerns. Generally, this defence has proved weak and the Federal Court has ordered fulfilment of requests in accordance with the relevant governing law – the Corporations Act. The list of those who have been dragged before the Federal Court include AXA, Challenger, Clime Asset Management, LM Investment Management and Wesfarmers (who settled on the steps of the Court).

The Corporations Amendment (No. 1) Act 2010 has introduced provisions whereby issuers of securities under the Corporations Act may limit certain access to member registers to protect investors. However, these amendments are restricted in their application.

In addition, the amendments introduced new obligations with regard to computer access that most issuers would be unprepared for." (emphasis added)

http://www.foxrock.com.au/media/FoxTweet1.pdf

http://www.smh.com.au/business/bottom-feeder-tweed-fishing-in-court-for-register-20101108-17kmz.html

http://www.goldcoastbusinessnews.com.au/process/myviews/gcbn_article.html?articleId=2585

“Australian law was amended in December 2010, to prevent the use of member registers to make unsolicited offers to Australian investors. As a destination for international investment, Australia needs to comprehensively outlaw Tweed’s practices in order to protect all investors."

and so it should have been - a little too late for Trilogy's PFMF.

However, the amendment does not prohibit members obtaining the registry with the view of contacting each other in order to change the manager or the fund's constitution.

"Obtaining a copy of the register of members
The responsible entity of a scheme is required under the Corporations Act to maintain a register of members of the scheme. The register may assist members considering calling a meeting by providing contact details for other members. A responsible entity must provide a copy of the members’ register within 7 days, if a person requests it and pays the necessary fee."

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/info111-information-for-investors-in-frozen-funds.pdf/$file/info111-information-for-investors-in-frozen-funds.pdf (bottom page 4 of 12)

 

[dinga]

Re: LM Investment Management - Registry Request

http://www.smh.com.au/business/bottom-feeder-tweed-fishing-in-court-for-register-20101108-17kmz.html

http://www.goldcoastbusinessnews.com.au/process/myviews/gcbn_article.html?articleId=2585

“Australian law was amended in December 2010, to prevent the use of member registers to make unsolicited offers to Australian investors. As a destination for international investment, Australia needs to comprehensively outlaw Tweed’s practices in order to protect all investors."

and so it should have been - a little too late for Trilogy's PFMF.

However, the amendment does not prohibit members obtaining the registry with the view of contacting each other in order to change the manager or the fund's constitution.

"Obtaining a copy of the register of members
The responsible entity of a scheme is required under the Corporations Act to maintain a register of members of the scheme. The register may assist members considering calling a meeting by providing contact details for other members. A responsible entity must provide a copy of the members’ register within 7 days, if a person requests it and pays the necessary fee."

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/info111-information-for-investors-in-frozen-funds.pdf/$file/info111-information-for-investors-in-frozen-funds.pdf (bottom page 4 of 12)

UPDATE - LM has moved on some important issues.

1. I've been advised that the Members' Registers for both the FMIF and CPAIF will be provided to me. I have arranged to collect the USB stick this Tuesday, 19 June and will provide a further update then.

Call me Thomas, but I will believe it when I see it......

2. LM has agreed to provide the minutes of the FMIF Members' meeting on 16 May 2012. Have suggested this kind of information/documents should in the future be circulated as a matter of course, and not be dependent upon request by a member.

3. LM has advised me that the RG45 is now being updated and will be provided 'in due course'. While this is indeed a welcome development, I have suggested that the audited financial statements for the funds should be provided prior to the next vote on changing the FMIF Constitution.

Be great if the above suggests a more open approach by LM, but I doubt that since it's been like pulling teeth to get to this stage.

 

[dinga]

Re: LM Investment Management - Registry Request

UPDATE - LM has moved on some important issues.


2. LM has agreed to provide the minutes of the FMIF Members' meeting on 16 May 2012. Have suggested this kind of information/documents should in the future be circulated as a matter of course, and not be dependent upon request by a member.

Have just received the minutes - haven't had time to consider (esp the implications of the vote split) but here they are....

View attachment FMIF Minutes of Meeting 16052012.pdf

 

[dinga]

Re: LM Investment Management - Registry Request

UPDATE - LM has moved on some important issues.

1. I've been advised that the Members' Registers for both the FMIF and CPAIF will be provided to me. I have arranged to collect the USB stick this Tuesday, 19 June and will provide a further update then.

Call me Thomas, but I will believe it when I see it......

Well Thomas, I am..... picked up the USB stick apparently containing both FMIF and CPAIF registers of members, without any further unnecessary hindrance from LM.

Have only had a very cursory look, but was shocked (when really I shouldn't have been - since the Federal Court noted there were a large number of elderly investors in FMIF) to see a large number of listings of deceased estates. Let's hope there are not very many more of us in that category before we can retrieve at least some of our monies...

Will be having a much better look over the weekend, to see how best I can try to facilitate the networking between we poor investors, and the development of options/consensus on how best to proceed to maximise the chances.

As always, really welcome the benefit of the experience of folks who have trod similar, unfortunate paths....

 

[ASICK]

Re: LM Investment Management - Registry Request

Have just received the minutes - haven't had time to consider (esp the implications of the vote split) but here they are....

View attachment 47562

Interestingly, the 'corporate representatives' voted strongly against the proposal (951,477 against : 36,500 for).

Nice outcome re: registry. So much ado - so much time wasted.

 

[ASICK]

The Two Rodgers

Have just received the minutes - haven't had time to consider (esp the implications of the vote split) but here they are....

View attachment 47562

Just took another look at the minutes, and in particular, the names of the attendees.

I thought "What a co-incidence?" - a "John Barry" (financial advisor) listed above a "Rodger Barnes" from Rojacan.

Trilogy Capital Group and Balmain Trilogy Asset Management Pty. Ltd. both have a common executives named John Barry and Rodger Bacon.

Trilogy Capital Group - http://www.balmaintrilogy.com.au/directors.aspx
Balmain Trilogy - http://www.balmaintrilogy.com.au/directors.aspx

Rodger Barnes is associated with Rojacan Pty. Ltd. - well, surprise, surprise, Rojacan is associated with Rodger Bacon - the two Rodgers are associated with Rojacan. Wow! What a co-incidence!

Here's an excerpt from the failed Trilogy Healthcare REIT (asset at Crows Nest NSW):
http://www.moneymagik.com/rojacan.jpg

I wonder if the John Barry (financial advisor) knows of John Barry (executive at Trilogy/Balmain Trilogy)?

What a co-incidence?

 

[ASICK]

I suppose LM Investment Management might be wondering "Why did a represetative of a company associated with Rodger Bacon attend the Sydney meeting?" - After all, Rodger Bacon is also an executive down at CYRE Trilogy:

http://www.cyretrilogy.com.au/index.php?id=2

Hey, I just noticed, a John Barry is an executive there too.

Of course anyone interested knows that on 7 July 2009, Trilogy took over the City Pacific First Mortgage Fund (now Pacific First Mortgage Fund) together with Balmain Trilogy Asset Management Pty. Ltd. (as asset manager) - losses up to 31 December 2011 (from the value re-assessed as at 30 June 2009) of about $176.5m (-42%) and things haven't been looking good since either.

CYRE Trilogy have been successful in taking over a number of APGF funds (CYRE Trilogy executive Peter Arnold was a co-founder of APGF - see the above link) - seems the dust still hasn't settled over the latest attempt: http://www.cyretrilogy.com.au/assets/files/Note to Investors re 14 June 2012 Meeting.pdf (seems the outcome might be disputed by APGF - no one disputes winning - so ...)

Both Trilogy and Balmain have weighed in on Equititrust's EIF too:

"Annexure C" - Balmain
"Annexure D" - Trilogy

http://equititrust.com.au/Pdfs/Admi...eports - 20120412 - Circular to Creditors.pdf

So, a hypothetical answer to the hypothetical question LM might pose might be:-

because "Trilogy is experienced in change-overs of responsible entities"
http://www.cyretrilogy.com.au/assets/files/Notice of Meeting - APS No 21.pdf
(see page 8)

Of course, it's probably the case he was simply interested in the goings-on.

:

 

[dinga]

At last, an excellent article by a knowledgeable, financial journo.

http://www.smh.com.au/business/the-...-management-20120517-1ysnv.html#ixzz1v6ASmhu7

TIME TO GET RID OF THE BLOODSUCKERS

Attached is LM response to this SMH article. As usual, am posting it with some very brief and initial thoughts:

1. This communication seems very different in style to the usual LM material - bears the fingerprints of PR professionals????

2. The style of this response, provision of the 16 May meeting minutes, promise of updated RG45, eventual delivery of the FMIF and CPAIF members' registers - do these indicate a more open and reasonable approach to valid investor concerns??? (very much hope so, although LM previously told me I would be hearing from their lawyers)

3. Fee levels seem extraordinary - especially for the feeder funds. If the true fees are to be totalled (ie. FMIF plus Feeder Funds), this means my CPAIF fee hit has been:
* 2008: 1.21%
* 2009: 5.92%
* 2010: 2.17%
* 2011: 4.93%

OUCH! Why should this be so?????? What am I missing????

4. The table of comparative performance would seem very rubbery - and especially dependent upon the re-appraisal of the realistic value of the underlying assets, and the effect on unit prices. Awaiting that detail with much interest.

Anyhow, here it is:

View attachment LM Advice 22062012.doc

 

[ASICK]

Latest LM Investment Management Communique

Hi Dinga - It's good you're able to provide these illuminating documents.

While there is much to comment on (after reading various PDSs and financial reports), here's a few observations:-

"The holding costs of the loans increased, i.e. capitalising interest and penalty interest increased the amount owed by the Borrower to the Fund and hence has resulted in increased loan to valuation ratios across the loan portfolio.

There was a softening in values across some sectors of the property market.* As a result some sales have been at discounts to create liquidity for the Fund."

I'm a little perplexed that the author speaks to "capitalising interest and penalty interest" as "holding costs".

These additional interests increase the value of loans held by the fund, and do indeed increase the LVR and thereby, the risk for investors. On the other hand, the softening market reduces the values of the underlying security assets which also increases risk (and LVR).

It's a punter's nightmare - a 'sandwich' created by increasing loan values and reducing underlying security asset values. The risk of the increasing loans is compounded by the reducing security asset values.

"... some sales have been discounts to create liquidity for the Fund." - it seems to me that such a statement should be of great concern to investors especially given the ongoing fund costs including management fees and extremely high debt facility costs.

One can only wonder how much of each $1.00 of assets at value is actually recovered.

It's when assets are sold that one tests the holding values of assets - and as admitted by the authors - discounts are in the offering in order to gain cash, the lifeblood of the fund.

All the theory and the intended expert opinions are worthless in the end - the market is the only "expert" - and the only true value is that value returned when an asset is actually sold. Punters might hold on and hold on, and the situtation might become worse and worse - see the PFMF's performance:
http://moneymagik.com/performance_PFMF_Trilogy_big.jpg

It's when assets are put to the market that the real value for a fund is shown - all the rest is mere guesswork.

A fair way to see the value of assets is to put a few of them to the market - and after sale, advise members of the holding value, sale value, holding costs, fees and charges (including management fee) attributable to each asset - but, that's not going to happen - so, it's back to mere guesswork.

"One commentator has raised a concern that Peter Drake, the Chief Executive of the responsible entity for the Fund, LM, did not attend that meeting." - well, I'm sure that's fine - a representative of Rojacan Pty. Ltd. (a company associated with Roger Bacon of Trilogy, Balmain Trilogy, and CYRE Trilogy) attended.

Fees in the feeder funds - it's interesting to note while that the author of the LM document attempts to justify the increased fees in the funds, there is no explanation why there is even a single cent of management fees in the feeder funds which simply feed dollars directly into the LMIF - what's the excuse for fees, nevertheless an increase in such fees (as shown particularly in 2011)?

Seems that in the case of things going pear-shaped that members in the feeder funds will suffer with compounded fees both from the LMIF and the feeder fund - from my perspective (and I don't hold any qualifications to give advice either legal or investment-wise), I think feeding from one fund to another fund should be outlawed.

 

[ASICK]

Too right Dinga - members of your fund who view this forum should express their respective views.

At 31 December 2011, 246.5m units were requested to be withdrawn, of which 107m were from feeder funds. Therefore 139.5m were requested from direct investors.

Feeder funds contributed 220m units (44.09% of the fund) : 49% requested redemption
Direct investment contributed 260m units (55.91% of the fund) : 54% requested redemption.
See: fund's 31 December 2011 financial report, page 23, part of note 8.

It therefore seems to me that the bulk of investors want to leave the fund, and that's why there was little to no opposition from investors - because they think they can escape - but can they?

Well, as I see it, if the assets which are sold off suffer a substantial loss then the number of units redeemed to each $1.00 gained by the sellers is high:

number of units redeemed = $1.00/unit price - eg. if the unit price is $0.60, then the number of units redeemed for each $1.00 is $1.00/.60 = 1.67 units redeemed per $1.00. If the unit price is $0.40, then the number of units redeemed for each $1.00 = 2.5 units per $1.00.

It seems to me that the sale of the lesser quality assets (market-wise) would eke out more units than the sale of good assets - that is, the manager would have to sell more good quality assets to cause investors to redeem the same number of units than a lesser number of lesser quality assets.

In my view, if the best assets were sold first, then it's probably the case that the fund would have to be wound up.

What members will be redeeming at, is not $1.00 per units, but $1.00/unit price as a result of the sale of an asset/s - there is a BIG difference.

Of course, these are only my opinions.

Here's an excerpt from page 19 (note 7) of the fund's 31 December 2011 financial report:-
"The LM Managed Performance Fund (MPF) has second mortgages on loans that are first mortgages of the LM First Mortgage Income Fund totalling a written down value of $39,900,577 (30 June 2011: $29,041,300). The LM PF may, on occasion, pay development and construction costs on these related loans. As part of the normal role as second mortgage, the related scheme will fund interest payments from time to time within approved loan facility limits."

When I read this excerpt from the fund's 31 December 2011 financials

“The company sometimes follows the fund with its own money, creating a second mortgage. "We can't end up behind a hostile lender," Mr Sullivan said”
http://www.heraldsun.com.au/busines...-at-city-pacific/story-e6frfh4f-1111114202243

Of course the term "related" refers to the manager (LM Investment Management), not the Income Fund. So, the manager is the manager of two funds, one lending behind the other. It seems the LM IF has already suffered losses on its first mortgage, and the second mortgage still spends money.

I'll leave members to draw their own conclusions - but the manager has two lots of obligations under Corporations Act 601FC(1) - to my mind, that's a real balancing act - to others, it might appear quite normal.
http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s601fc.html

Are such security assets (first mortgages) in front of the manager's related fund's second mortgages on the chopping block for sale under the proposed new deal? If that happened, it may mean that the second mortgagee would get nothing - oh dear!

Last point of interest looking at the 2011 return on page 19 (Note 7 - Related Parties), a note is made to the fact that no originating fees were charged since no new loans were made. However, no mention is made of the $2,590,490 is shown as loan renegotation fees (since there were no originating fees).

An extra $2.6m is a handy bit of cash flow for only 6 months on loans which are probably already in default. It's a crazy world, the manager made the loans, the loans are losing, and the manager picks up another $2.5m on renegotating the loans!

Cash flowing out of the fund to the manager for only a six month period is at least $7.54m and then there's the fees flowing to the manager from the feeder funds. A nice cash flow indeed.

Again, I hope (along with Dinga) that members of the fund read the financial reports, RG 45s, and spiels from the manager and post their thoughts on the forum. I am not a member of the fund and other than wishing the best for investors, I have no financial interest in the fund's ultimate outcome.

 

[dinga]

Attached is LM response to this SMH article. As usual, am posting it with some very brief and initial thoughts:

1. This communication seems very different in style to the usual LM material - bears the fingerprints of PR professionals????

2. The style of this response, provision of the 16 May meeting minutes, promise of updated RG45, eventual delivery of the FMIF and CPAIF members' registers - do these indicate a more open and reasonable approach to valid investor concerns??? (very much hope so, although LM previously told me I would be hearing from their lawyers)

3. Fee levels seem extraordinary - especially for the feeder funds. If the true fees are to be totalled (ie. FMIF plus Feeder Funds), this means my CPAIF fee hit has been:
* 2008: 1.21%
* 2009: 5.92%
* 2010: 2.17%
* 2011: 4.93%

OUCH! Why should this be so?????? What am I missing????

4. The table of comparative performance would seem very rubbery - and especially dependent upon the re-appraisal of the realistic value of the underlying assets, and the effect on unit prices. Awaiting that detail with much interest.

Anyhow, here it is:

View attachment 47596

Couple more considered comments:

1. On reflection, I must have been delusional to suggest this advice was penned by PR professionals. For the most part it's LM typical - some softer expressions in the first page or two, but the rest is stock standard stuff that sadly I've come to see more as 'spin' than substance.

2. It is important to firstly reiterate that LM's intention was to secure a binding vote at the meeting on 16 May, with investors being provided with nothing in the way of sufficient and detailed modeling and asset information to allow informed decision making on LM's recommended changes to the FMIF Constitution. In my view, the fact that the binding vote has been delayed until after LM provides such information is a victory to investor agitation, including with ASIC.

3. LM presented a very simple scenario about merely seeking to allow investors to "Sell" or "Hold", and the +96% support level should be seen in this light. In my view, investors were not provided with sufficient information to understand the profound effects of those simple choices. My reading of the +96% support level is that the majority of investors have had a guts full and simply want out.

4. The sad reality is that it is by no means certain that investors will get their "Hold" and "Sell" elections. There is a level - presently unstated - beyond which "Sell" requests will make the remaining asset value insufficient for the Fund to continue as a viable vehicle for investors who elect to "Hold" ie. the fund will need to be wound up if the "Hold" percentage does not reach a certain level.

Since there is an inherent possibility that the fund could be would up, in my view it is imperative that LM provides investors with the necessary information and modeling to understand the impact of such an outcome, and to allow comparison with the other financial outcomes demonstrating different scenarios of the “hold” and “sell” weightings and expectations from these scenarios. This would mean the next stage should be binding votes on:
* Firstly: Wind Up the Fund or Approve changes to the Constitution
* Only if the Constitutional changes are approved: investors allocate to "Sell" and "Hold"

5. In relation to the feeder funds LM now advises "These funds will also be given the opportunity to vote for similar constitutional changes to implement liquidity mechanisms within those funds to provide the same investor choices as to “hold” or “sell”, or a combination of the two. The LM First Mortgage Income Fund will allocate the interests of those funds to “sell” or “hold” as directed by their investors." I am very weary of the mixed messages about whether or not the Feeder Fund investors will get a say about the Constitution changes, or just be given the "Hold" or "Sale" choice if those changes are approved by FMIF investors. This ambiguous statement does not help and LM must state the position unequivocally. In my view, denying Feeder Fund investors this right is itself reason enough to get rid of LM as RE.

6. REF: DBank line of credit: an extraordinary 18% interest rate now applies - in comparison with the 8% payable earlier to the Commonwealth. What does such a very high interest rate say in relation to DBank's view of risk and value/liquidity of the underlying assets? Awaiting the updated RG45 with much interest (pardon the pun) to see (a) has the $13.5 mill been paid by 30 June 2012; (b) what are the conditions of extension of the facility - especially the LVR requirement.

7. The fee level seems extraordinary - especially by the feeders funds in 2009 and 2011. LM should be asked for further information. ??how does LM judge the fees to be 'appropriate'???? What relationship is there if any to the level of these fees and the needs/operations of other LM funds?


8. In addressing the question of loans to related parties, LM makes a big deal about the Directors having no beneficial interest in the security properties. Of more concern to me, is that LM has a clear beneficial interest in the activities of all of the related LM funds, and I've always wondered how decisions could be made that are demonstrably in the interests of investors in each of the individual funds rather than just LM overall. I've always been uncomfortable with these interrelationships from just the 'optics' perspectives. Clearly detailed analysis is needed to see if there are potential concerns or not, and seek followup clarifications from LM if appropriate.

 

[ASICK]

https://www.aussiestockforums.com/forums/attachment.php?attachmentid=47596&d=1340417850

“The three feeder funds are naturally also frozen and affected by the same provision.** These funds will also be given the opportunity to vote for similar constitutional changes to implement liquidity mechanisms within those funds to provide the same investor choices as to “hold” or “sell”, or a combination of the two.* The LM First Mortgage Income Fund will allocate the interests of those funds to “sell” or “hold” as directed by their investors.”

Actually, the members of the feeders have no right to 'direct' the FMIF to do anything. The manager (as manager of the feeder funds) will cause units invested in the FMIF on behalf of members of the feeder funds to be “held” or “sold” according to feeder funds' members' elections. Members shouldn't forget that members of the feeder funds are not 'relatives' of members of the LMIF.

“With improvement in*sales activity in the Australian property market, we believe there is an opportunity for improvement in the unit price in the future.* The market will ultimately determine the value of the provision required to be utilised once the properties have been sold and settled.”

What the author is not saying is that there is also an equal opportunity for further impairments and further actual losses but it's more comforting to punters if a positive spin is put on the fund's future performance. The existing impairments reflect the soft market, and the author has already admitted that discounts (from holding value) were necessary to sell assets.

“Not one investor has lost all of their money in the Fund. The unit price is currently 73 cents ($1.00 prior to the GFC), reflecting a provision of 27 cents for reduction in underlying asset value, comprising a write down of 13 cents and an unrealised balance of 14 cents.”, but when punters redeem they'll lose 27 cents of each $1.00 invested, plus they lose income not earned.

The FMIF constitution (clause 8) provides that the withdrawal price as:
(Net Fund Value / Number of Units on Issue) calculated at the last valuation date prior to the withdrawal date.
[not accounting for the so-called 'stepped liquidity option' which may provide for more or less loss per unit]

It might be very well for the manager to speak to impairments as not being losses, but impairments reduce the value of net assets (the value attributable to unitholders).

“As we move forward, investors will receive financial modelling demonstrating different scenarios of the “hold” and “sell” weightings and expectations from these scenarios.” - I'd be surprised if the models aren't disclaimed, and of course, past performance is NOT an indication of future performance. Crystal balls are just as helpful, but one has to be very careful with such treasures.

Who carries ALL the risk? Well, punters, of course.

“Every property owner recognises that you do not sell property during a downturn if you do not absolutely have to.” - not every property owner is paying a fees and extraordinarily high interest fees on a debt facility together with all the other costs associated with the operation of a managed fund. I'd say that a smart investment property owner would have exited the market over a year ago, especially if burdened with unrelenting costs in a down-turning market. For example, the bank facility is costing members of the fund an amount of interest three times as much in interest as members would be able to earn with the same amount of money in a term investment. Leverage is valuable in a rising market, but its pure murder in a falling market.

As to the fees, whether the manager takes 5.5% or a lesser amount is at the manager's sole discretion – and how would investors know the rate of management fees charged each period? The amount of fees is only disclosed months after the close of each reporting period. Even 2.5% seems over the top, but that doesn't stop a charge of 5.5% if the manager so decides.

 

[dinga]

https://www.aussiestockforums.com/forums/attachment.php?attachmentid=47596&d=1340417850

“The three feeder funds are naturally also frozen and affected by the same provision.** These funds will also be given the opportunity to vote for similar constitutional changes to implement liquidity mechanisms within those funds to provide the same investor choices as to “hold” or “sell”, or a combination of the two.* The LM First Mortgage Income Fund will allocate the interests of those funds to “sell” or “hold” as directed by their investors.”

Actually, the members of the feeders have no right to 'direct' the FMIF to do anything. The manager (as manager of the feeder funds) will cause units invested in the FMIF on behalf of members of the feeder funds to be “held” or “sold” according to feeder funds' members' elections. Members shouldn't forget that members of the feeder funds are not 'relatives' of members of the LMIF.

.

My understanding is that LM (as RE of each Feeder Fund) holds those investments on behalf of the unit holders, and therefore cannot exercise those FMIF investments since it has 'an interest' in the proposed changes to the Constitution.
* I also understand that LM can apply to ASIC, to gain relief from this standard restriction - for example where there is a benefit to be gained for investors.

Clearly if an unrelated party was RE of those feeder funds, that RE could - and no doubt would - want to vote on those changes - presumably after canvassing the opinions of the individual investors. Seems to me a similar outcome is what investors in CPAIF, WFMIF and ICPAIF should be demanding - since they collectively hold 43.8% of the value of the FMIF.

What I find bloody annoying are the mixed messages being given by LM on whether or not the Feeder Fund members will be allowed to vote on changes to the FMIF Constitution (see the latest example above)

 

[ASICK]

My understanding is that LM (as RE of each Feeder Fund) holds those investments on behalf of the unit holders, and therefore cannot exercise those FMIF investments since it has 'an interest' in the proposed changes to the Constitution.
* I also understand that LM can apply to ASIC, to gain relief from this standard restriction - for example where there is a benefit to be gained for investors.

Clearly if an unrelated party was RE of those feeder funds, that RE could - and no doubt would - want to vote on those changes - presumably after canvassing the opinions of the individual investors. Seems to me a similar outcome is what investors in CPAIF, WFMIF and ICPAIF should be demanding - since they collectively hold 43.8% of the value of the FMIF.

What I find bloody annoying are the mixed messages being given by LM on whether or not the Feeder Fund members will be allowed to vote on changes to the FMIF Constitution (see the latest example above)

I read the situation differently. I understood that each of the feeder funds would attend a meeting (perhaps at a fancy hotel and at great expense to each of the funds), and members of the respective funds would elect, subject to constitutional changes in those funds in the event the proposals were successful, to "sell" or "hold" (duh!) their respective share of the units invested by each member's respective feeder fund in the FMIF. What a mess.