Tower winds up $242m mortgage fund

Monday 7th April 2008

Tower's $242 million conservative fixed interest fund is being wound up as it is uncompetitive under the new tax rules and faces a stiff challenge from banks.

Tower Investments chief executive Sam Stubbs says the First Mortgage Fund is being wound up starting from Friday and investors would be paid out as mortgages are repaid or sold.

The fund has 450 residential and commercial first mortgages totalling $220 million by value. Currently 9.1% of mortgages by value are in arrears for more than 30 days.

"These are being actively managed," Stubbs says. "The fund has relatively high cash holdings of over $22 million."

The 18 year-old fund has "consistently provided investors a fair but modest rate of return."

Over the past year the interest paid was over 7%. Stubb says the fund "is no longer a relevant and competitive investment in the current environment where banks are competing so aggressively for deposits.

"The current credit environment and increasing arrears and defaults require more conservative provisioning for bad and doubtful debts, which impacts the interest rate payable. This has led to increasing redemption requests and it is prudent and appropriate to act in the best interests of all investors by winding up the fund."

Stubbs says as it is a Group Investment Fund (GIF) it is difficult to convert it into a PIE compliant product.

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