LM Investment Management - Lack of confidence

Perspective

http://moneymagik.com/analysis_REIT.php

What really is remarkable is that an entity such as Trilogy is taken even a tad seriously - the fact that it is is a sad indictment of the managed fund business.

Cast your minds back to 2009 (when Trilogy was running for the PFMF) - Trilogy needs money for its Healthcare fund. The fund's PDS discloses that Trilogy'll spend about $64k on fundraising. And let's be clear, fundraising was the mechanism by which Trilogy would spend the fund's resources (money) in order to lure new investment into the fund in order to (among other things) allow Rojacan Pty. Ltd. (a company associated with Rodger Bacon) to extract its loan (seed money) out of the fund (after earning its quite healthy return at investors' expense).

In actual fact, instead of $64k, Trilogy spent nearly $500k of investors' money and as a result, Rojacan was free and away.

$3,555,000 of application monies flowed into the fund - and 3,555,000 more units were issued. Sad thing for the investors was that those $1.00 units were only worth $0.63/unit (current value 30 June 2008).

There is only ONE single reason why 2009 was a relatively good year for Trilogy's Healthcare REIT (unit price as at 30 June 2009, $0.60/unit), and that's because those new investors took the majority of the hit by losing 0.37 * $3,555,000 the moment they invested: That's an instantenous loss of $1,315,350, or $0.37 lost for EVERY $1.00 invested in 2009 (not accounting for the further $0.03/unit suffered as at 30 June 2009).

It's quite easy to see that Rojacan Pty. Ltd (the company associated with Rodger Bacon) did well - it made its "pretty penny" and escaped, but not so the punters.

After all that fundraising, keen-to-invest punters sent their hard-earned to Trilogy - Trilogy issues a $1.00 unit for EVERY $1.00 of those hard-earned dollars [each unit is only worth $0.63]. Visualize the investor sending the money - visualize Trilogy issuing the units - visualize the current value of the units - paint the mental picture in your mind.- visualise the immediate loss.

Now, if you've got that mental image - bring that image to mind EVERY time you read something from Trilogy.

Perspective really does make a difference.

For the specific attention of Mysteryman and other LM WFMIF investors- ASICK your views are sought also please

I wrote here recently that LM has paid Trilogy approx $1.7m for WFMIF investors as a Capital Distribution.

When asking Trilogy some questions about this distribution I was advised this by Trilogy -QUOTE ...if it is to be treated as income it will affect certain classes of unit holders (i.e. the overseas bond holders...who have their income capitalised into the unit price of their bond as opposed to receiving a cash distribution)....whereas if it is a return of capital we can distribute the payment to all unit holders (i.e. both bond holders and normal unit holders)....UNQUOTE

I later Questioned Trilogy re what was meant by Bond Holders they said QUOTE --There are a number of international investors who have invested in the LM Wholesale Fund via a bond (refer to the URL which provides a unit price update and includes a large number of bond holders (http://www.trilogyfunds.com.au/site/assets/files/LMWF Unit Price_Final.pdf) UNQUOTE I think this chart is posted here at Number 412

Maybe I am confused, or just don't understand? but it was my understanding that only two investment options existed, one for the Flexi Acct, and other for Fixed Term Investments ie 12m, 2y,3y 4y and more I don't remember anything re bonds?
Can anyone explain this.

Trilogy knows full well this is a Capital Distribution

Of more interest also in the Chart/Table note the different Unit Prices for Investment Types -Bond 0.89c to 0.97c verses others at 0.59c what does this mean?

In checking the WFMIF PDS I cannot find any reference to investing in Bonds at all. Maybe its just me but why would there be a Unit Price for Bonds significantly greater than the Unit price for other investors ,say in the Flexi Account, considering the WFMIF only invests in the FMIF

Any views welcomed

Trilogy at the Helm

RODENT69 said:

For LMFMIF investors- re "Capital Distribution"

I am advised by LM and confirmed by Trilogy that approx $1.7m was paid by LM to Trilogy on last Friday for Unit Holders in the LMWFMIF.

Click to expand...

There's a problem for you here. I don't believe LM is entitled to tell investors in the LM WFMIF anything unless authorised to do so by Trilogy. Therefore neither Trilogy nor LM are obligated to disclose the document which accompanied (or explained) the payment of $1.7m to the LM WFMIF.

RODENT69 said:

... Trilogy knows full well this is a Capital Distribution ...

Click to expand...

With respect, nobody (but Trilogy) knows what's in its corporate "mind", and if the aforesaid letter isn't disclosed, then you'll all be in the dark about this matter. I think that the problem is arising out of these so-called "distributions" that LM has been spruiking about (in my view, the Clayton's Distributions).

I don't think Trilogy's clearly stated that it's winding down the LM WFMIF (Crikey, shouldn't it be called the Trilogy WFMIF?).

It seems to me, that in the end, whether the monies are distributions (or income) or capital repayments, money should be repaid to investors and that a clear declaration should be made by Trilogy that the Trilogy WFMIF is being wound up at a rate mostly determined by the capital repayments from the LM FMIF.

I wonder how long Trilogy's been musing over this matter?

"The Snake That Bites All"

Some excerpts from the "4 Corners" episode "Betrayal of Trust":
http://www.abc.net.au/4corners/stories/2013/03/04/3700673.htm

"KERRY O'BRIEN: A billion dollar betrayal of trust. How safe are your investments? Welcome to Four Corners. And welcome to the sometimes treacherous world of management investment funds. Australians are getting better at saving for the future because with a rapidly aging population, they know they have to if they want any guarantee of a vaguely comfortable and dignified retirement.

What many of them didn't know and have discovered to their cost is just how little protection their money has in some parts of the investment community. Australian banks are amongst the most tightly regulated in the world. Managed investment schemes attracting many billions of dollars of ordinary peoples' savings are not.

One estimate puts the money lost through these schemes in the past five years at up to $15 billion - that's billion. Tonight's program will shock you at the ways a person's hard earned savings can be legally lost. The story will also ask if governments are failing in their duty to provide adequate regulatory protection."

"NIALL COBURN, FORMER ASIC SPECIAL INVESTIGATOR: The estimate is easily between ten to fifteen billion since the GFC. That's- that's my estimate. It might even be higher than that. The reality is that ordinary Australians have lost their money in these managed investment schemes so the law is not good law.

I don't know why the law has not changed. Maybe it's not in the interests of the chosen few, I don't know."

"TONY MCGRATH, BANKSIA RECEIVER: Mm. And its name Banksia probably implies some form of strength that simply is not there. Look the reality is, this sector - which takes deposits from individuals and pays interest rate on them - they're not banks. They are mortgage funds. They take money from the public, they on-lend it.

They're operating in a zone which is slightly riskier than a bank and there's many good reasons as to why this sector exists as it does. But the problem is that they are not regulated by APRA, they don't have the same capital requirements and so when there is a continued economic downturn these sorts of businesses come under increased pressure."

"NIALL COBURN: If you were driving a fast car through any city doing a 150 k, you would be immediately stopped by the police, and there's not a police force in Australia that would let that driver drive that car in the morning.

Why is it different when you come to managed investment schemes where people have lost billions of dollars and yet these directors can walk away unscathed - and some of them go around the corner and start their own shop again? It has got to be wrong."

Could it be the case that the "4 Corners" espisode had an impact on those who have deposits with funds like Trilogy's Monthly Income Trust? It woudln't surprise me if it did. If existing investors began to get nervous, and if the pool of punters eager to get into such funds dries up, then funds such as Trilogy's Monthly Income Trust could freeze (become non-liquid), even if they were otherwise sound. To my mind, it's clear that investor sentiment is deeply swayed by the media.

Of course, while the episode was of interest to investors in frozen funds, I think it would have had more of an impact of those already investing in the sector.

Interestingly, after sending out spruiks in the mail to investors in the PFMF, since the airing of "Betrayal of Trust", Trilogy has now resorted to emailing members of the PFMF. After all, as disclosed in the SQM independent assessment of the fund discloses that the loans in Trilogy's fund are capitalized (with accrued interest) - that is, no cash inflow from the loans. If there's no alternative source for CASH, such as new investment, then how does Trilogy pay income distributions to members? and if there's a demand by investors for return of capital, that's a recipe for disaster.

Are the letters and (now) emails to PFMF investors a sign of "Betrayal of Trust" impacting on Trilogy?

Could this be a sign of media impact: "The Snake That Bites All"

Hi Rodent, Asick et al. I received something similar from Trilogy:

'There is a slight technical issue which needs to be resolved....the balance sheet for the LM Wholesale Fund includes a liability for unpaid income distributions...however the distribution just received appears to be a return of capital......we need to obtain advice from the Ernst & Young audit partner as to wether the distribution is income or capital in the hands of unit holders....(a meeting is scheduled for this week)

...if it is to be treated as income it will affect certain classes of unit holders (i.e. the overseas bond holders...who have their income capitalised into the unit price of their bond as opposed to receiving a cash distribution)....whereas if it is a return of capital we can distribute the payment to all unit holders (i.e. both bond holders and normal unit holders)....'

I'm not offering excuses for Trilogy, but maybe the balance sheet from LM (as mentioned) is cause for confusion over what the payment represents. Unsurprisingly, LM may not be going overboard to ease things for Trilogy.

On your second point concerning the 'Global Portfolio Bond', I am at a complete loss to offer any explanation. Like you, I can find no mention of it anywhere, but feel it is worth pursuing with Trilogy and possibly LM. Will see what I can find out. Of course, if the annual financial report for the wholesale fund were available, there might be some mention made, but there is no mention in the 2008 pds.

Mysteryman said:

... I'm not offering excuses for Trilogy, but maybe the balance sheet from LM (as mentioned) is cause for confusion over what the payment represents. Unsurprisingly, LM may not be going overboard to ease things for Trilogy. ...

Click to expand...

Hi Mysteryman,

I'm curious as to why you add, "Unsurprisingly, LM may not be going overboard to ease things for Trilogy."?

Aren't you, by way of your comment, doing just as you say you're not, that is, "offering excuses for Trilogy"?

I think a fair reading of Trilogy's letter would lead one to conclude that the problem relates to accounting matters, not to an act of obfuscation by LM.

"There is a slight technical issue which needs to be resolved....the balance sheet for the LM Wholesale Fund includes a liability for unpaid income distributions...however the distribution just received appears to be a return of capital......we need to obtain advice from the Ernst & Young audit partner as to wether the distribution is income or capital in the hands of unit holders....(a meeting is scheduled for this week)"

Mysteryman you and I have the exact same doc from Trilogy, I just did not include all the text

FYI I am glad another investor is confused by this Bond Reference, I have asked BT to investigate, their initial reply last night says they are also confused as I am/we are. More re this later

BT has some additional material I provided re the Unit Price differences in the Trilogy Table, which they are investigating. I also have the 2008 PDS and all Supplementary PDS's and cant find anything relating to so called Bonds?

In relation to Unit Price differences I offer this --- I ask myself why do these Bond Investments Options in the chart have a Unit Price significantly greater than my investment@ 0.59c per unit given that the WFMIF only invests in the FMIF, maybe I am just dumb.

Even if “Bond Investors” had their Income Capitalised as Trilogy says , given investors have not received income for several years how could their Unit Price (as per the Chart/Table be much greater than mine in the Flexi Account?

WF unit price / interst

By reference to the LMFMIF, the $ attributable to unitholders is $288,980,628.
The unit price is $0.59
Therefore the number of units on issue is ($288,980,628 / $0.59) = 489,797,675

By reference to page 31 of the return, the WF held an investment of $87,470,115
The unit price is $0.59
Therefore the number of units held by the WF in the FMIF is ($87,470,115 / $0.59) = 148,254,432
(30.27% of the total fund)

If interest was reinvested in the WF, then more units would have been issued by the WF.

Trilogy will decide how the $1.7m is dealt with in the fund. My guess is that it'll be dealt with as a return as capital and distributed to all investors on a pro-rata basis (according to each member's unitholding), and as a consequence, any unpaid interest (capitalized) will be lost - or alternatively, paid out in priority to the pro-rata capital repayment.

http://www.trilogyfunds.com.au/site/assets/files/LMWF Unit Price_Final.pdf

Let's see ..

ASICK I refer to your Posting #468

I qualify these comments firstly by saying none of us has access so far to the LMWFMIF 2012 Audited return, so we are a bit in the dark. I am not sure all your figures in posting #468 are correct because

Firstly Trilogy thinks in their doc's that the WFMIF represents about 20% of the FMIF, I tend to agree with this % not 30.27% as you say

Irrespective of the division of Assets in $ by Units = 0.59c the Units attributable to Investors for the WFMIF as at 30 June 2011 were approx 95,851,492.

I dont know what may have changed for 2012, but I suspect the Units numbers will be approx the same, therefore 95.851m units divided by your 489,797,675 units figure for the FMIF (2012) would make the Units for WFMIF = about 19.5%

At the time LM said that 95,851,492 units were attributable to unit holders in the WFMIF (2011) it said the Asset value was $73,472,020

LMFMIF Financial Report dated 30 June 2012

[you're right... I looked at the wrong fund .. yipes.. sorry]

Correction

Corrected Posting

By reference to the LMFMIF, the $ attributable to unitholders is $288,980,628.
The unit price is $0.59
Therefore the number of units on issue is ($288,980,628 / $0.59) = 489,797,675

By reference to page 31 of the return, the WF held an investment of $72,164,922
The unit price is $0.59
Therefore the number of units held by the WF in the FMIF is ($72,164,922 / $0.59) = 122,313,427
(25% of the total fund)

I've maintained for some time that there's an error in either the % or the $ for the feeder funds - and I still maintain that view. That's why I say "By reference to" because I really don't know which figure is correct. In my view, the return is defective.

If interest was reinvested in the WF, then more units would have been issued by the WF.

Trilogy will decide how the $1.7m is dealt with in the fund. My guess is that it'll be dealt with as a return as capital and distributed to all investors on a pro-rata basis (according to each member's unitholding), and as a consequence, any unpaid interest (capitalized) will be lost - or alternatively, paid out in priority to the pro-rata capital repayment.

http://www.trilogyfunds.com.au/site/assets/files/LMWF Unit Price_Final.pdf

For an example of what you might receiver per unit, say 12% is deducted for expenses, that'd leave $1.5m, or $0.01227 per unit. If you've 100k units, then you'd receive $1,227 (or whatever your calculator tells you). [that's if there's no payout of interest to those holding bonds in priority to capital repayments to all]

[just an estimate]

please see the graphic on my post # 372 and note the amended graphic on the link:
http://www.moneymagik.com/LMFMIF_at_a_glance.jpg

Rodent, perhaps you didn't know, but it is possible to receive and send private messages on this forum. Try looking at your inbox.

LMFMIF - Financial Return as at 30 June 2012

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

Gross assets: $343.97m
Net Assets (attributable to unitholders) = $288.98m [item 6 on page 9]
http://moneymagik.com/FMIF-financials-30-06-12.pdf

The Feeder Funds [page 31]

LM Currency Protected Australian Income Fund: $87.47m - 24.75% of scheme
LM Institutional Currency Protected Australian Income Fund: $6.70m - 1.9% of scheme
LM Wholesale First Mortgage Income Fund: $72.16m - 20.42% of scheme
Total: $166.33m - 47.07% of scheme

If $166.33m = 47.07% of the scheme, then x (more) = 100% of the scheme.
So, the scheme's value (working from 47.07% of the scheme as disclosed) = $166.33m * 100 / 47.07 = $353.37m

Remember, Gross Assets = $343.97m, and Net Assets = $288.98m
So, $166.33m in NOT 47.07% of either of gross assets, or net assets (although it is closer to Gross assets).

47.07% of the scheme (net assets) = $136.02m, NOT $166.33m

It seems clear (at least to me) that the framers of the return worked off the wrong scheme value ($353.37) instead of net assets (attributable to unitholders, $288.98m)

Therefore, it's reasonable to assume that with regard to the Feeder fund values on page 31 of the return, the % values are correct, while the $ values are erroneous (see the first link on this post).

That being the case, if the wholesale fund holds 20.42% of the scheme, then it holds .2042 * $288.98m, or $59.01m in equity, or ($59.01m / $0.59) = about 100m units.

If the full $1.7m was returned to investors on a pro-rata basis (according to unitholding), then each unit would receive about $0.017. A $100k unitholding would receive $1700. So, it should be easy to estimate how much doesn't end up in investors' pockets.

[disclaimer - we shouldn't rule out that given the $$ values on page 31 are erroneous, so might be the % values]

Re: LMFMIF - Financial Return as at 30 June 2012

[ignoring the Darcy holding of 169 units]

Total class B unit = 224.86m (2012 financials, page 22)

Total units on issue = $288.98m / $0.59 = 489.8m units (by reference to page 22, total units = 487.29m)

If the % are correct, then Feeder Fund Total should equal Class B holdings.

24.75% of scheme = 121.23m
1.9% of scheme = 9.31m
20.42% of scheme = 100.02m
Total (47.07% of scheme) = 230.36m

47.07% of scheme = 230.54m
Class B holdings = 224.86m

Overall Error = about 2.5%

So, the % seems to be a tad erroneous also, but a lot closer than the $ figures ($136.02 v. $166.33, or 18.2% error (not accounting for % error)).

LMFMIF - as at 30 June 2012

The 47.07% of the fund.

http://moneymagik.com/FMIF-financials-30-06-12.pdf

Page 21:

Class B = 224.862m

Total units on issue = 198.32m + 288.98m = 487.3m

so, the total for the feeder funds (class b) cannot exceed 46.14% of the net assets attributable to unitholders;

and the total $ of the feeder funds (class b) cannot exceed .4614 * $288.98m, $133.35m.

I'm really surprised that the 2012 financials for the LMFMIF stand today.

How did these errors get past the auditor?

Why hasn't LM rectified these accounts?

ASIC doesn't give a hoot - does anyone?

What else about the return is defective?

Note: the table of page 21 might be a tad confusing to some - it's actually a table of unitholdings (at $1.00) and then the impairment ($192.32m) is subtracted to give the net assets attributed to unitholders ($288.98m) - the $288.98m is the value which represents .59% of the fund (that equates to about $0.593/unit).

It's really a table which finally discloses equity, but equity for the total of the sub-totals of the various unitholdings for the three classes (a, b, and c), each expressed at $1.00 units held.

I'm a little confused because $1.00 units seem to have been issued (and redeemed), but the value of the unit when the issuance/redemption took place doesn't seem to have been $1.00 - something else to think about? How does one issue $1.00 units when the current value is less than $1.00 - is that fair?

LMFMIF - as at 30 June 2012

The reference in my previous posting to page 21, should be to page 22.

This is how they say unit price is calculated ("the formula") - (net assets atttributable to unitholders / total units on issue): Excerpt from page 19 of the 2012 accounts:
http://moneymagik.com/FMIF-financials-30-06-12.pdf



Unit price as at 1 July 2011 - $0.806/unit

Unit price as at 1 January 2012 - $0.72 (?)



I'm curious about the table on page 22 of the financials. It appears to be a table of contributed equity for each class with a resultant unitholder net equity figure obtained by subtracting/adding the movement in unitholder equity from/to the sum of the sub-totals of each class.

What I find troubling is that, say for Class B, there is no separate table for units redeemed and/or issued at current value (by use of the formula).

If unit price was $0.806/unit, then for each $1.00 paid, $1.00/$0.806 units, or 1.24 units must be redeemed (1.39 units at $0.72/unit): not a $1 = 1 unit relationship.

Likewise, for issuance of units, for every $1.00 invested, 1.24 units must be issued (1.39 units at $0.72/unit): not a $1 = 1 unit relationship.

When the formula is applied, the lower the unit price, the greater the number of units redeemed/issued per $1.00 paid out/paid in.

Yet, the table reflects an equality - a one dollar per one unit relationship. no variance is disclosed for the net (about) 14.6m * $1.00 units issued at $0.806/unit or $0.72/unit in class B.

It seems to me that the table is one of convenience, rather than one of exactness.

To make the table exact, equity contributions based on current value (by applying the formula) instead of $1.00 would have to be disclosed, which they are not.

It's a neat table, but I'm not convinced it's an accurate one.

LM appoints Administrators... Surprise surprise... Usual modus operandi of this breed of Gold Coast Funds...

Look out for some cheap Gold Coast Beachfront Property...

These ego maniacs look like they are finally being brought to account...

Another one on the scrap heap of the spivy Gold Coast...

Adios amigos

LM FMIF as at 30 June 2012

http://moneymagik.com/FMIF-financials-30-06-12.pdf

The table on P.22 shows whole units per $1.00 - it doesn't show that a number of those units were transacted at the current value. In other words, the units redeemed and issued during 2012 were transacted at prices below the unit price (on balance, 14.559m were issued). The prices at which these transactions took place are:

(if there were more than one transaction within each group, then the unit price is an average of those transactions).

Redemptions:
P. 11 - Payment for Redemption of Units: $3,600,345
P. 22 - Units issued: 4,497,306
Unit price = $3,600,345 / 4,497,306 = $0.806/unit
Units redeemed per $1.00 paid = 1 / 0.806 = 1.241 units per $1.00 paid.

New units Issued on Reinvestment:
P. 21 - Distributions paid/reinvested: $12,218,354
P. 22 - Units issued for reinvestments: 16,052,233 (Class B & C)
Unit price = $12,218,354 / 16,052,233 = $0.7611/unit
Units issued per $1.00 reinvested = 1 / 0.7611 = 1.314 units per $1.00 reinvested.

New units issued (no-reinvestment):
P. 11 - Receipts for issue of units: $2,312,382
P. 22 - Units issued: 3,004,385
Unit price = $2,312,382 / 3,004,385 = $0.7697/unit
Units issued per $1.00 received = 1 / 0.7697 = 1.299 units per $1.00 received.

This is what I meant by saying that the table on P. 22 doesn't truly reflect what happened within the fund. The table has to be read in conjunction with PP. 11 and 21.

While the number of units in the fund increased, these new units were issued at a sub-par value.

No Trust said:

LM appoints Administrators... Surprise surprise... Usual modus operandi of this breed of Gold Coast Funds...

Look out for some cheap Gold Coast Beachfront Property...

These ego maniacs look like they are finally being brought to account...

Another one on the scrap heap of the spivy Gold Coast...

Adios amigos

Click to expand...

Good morning No Trust.

Is there a link to go with what you've posted?

Typically, LM does not appoint administrators, rather it does the work itself for all those extra $$$$.

See page 5:
http://moneymagik.com/FMIF-financials-30-06-12.pdf

$4,817,414 - "Loan management fees paid to the responsible entity for loan management and receivership services provided by the responsible entity on behalf of the scheme in replacement of appointing external receivers. These fees are charged directly to the borrower to facilitate futher possible recovery."

Of course, if the loans are already impaired then recovery of these monies will be impossible. The $4,817,414 is gone - and the only winner is LM - making money from bad loans that LM itself made. And on top of that, LM made $9,103,864 in management fees.

A frozen fund is surely a "Manager's Delight".