In 2009, LM began having trouble paying back investors on time. Sometime afterwards, LM introduced two- and three-year investment terms. It also indemnified sales commissions. This meant an adviser could receive an immediate 9% cut of any investment locked into a three-year term. LM’s Managed Performance Fund suddenly became a bestseller.
In November 2011, sixteen months before LM collapsed, LM notified financial advisers that it was introducing four- and five-year investment terms to “meet current investor demand”. Investors who agreed to lock up their money for longer periods would be promised higher rates of return.
When the announcement reached Martyn Terpilowski, he reacted with shock and disbelief. He immediately fired out an email to Peter Drake which said, “It is absolutely amazing that you can carry on getting away with this.”
Martyn did not believe the “investor demand” story. He accused Drake of pandering to unscrupulous advisers and trying to take the heat off of himself to pay back new investors. Many old investors, including one of Martyn’s clients, had been angrily demanding to have their money back for well over two years.
Drake did not respond to Martyn’s email.
Below is a copy of LM’s announcement, followed by Martyn’s letter to Drake.
From: “LM Investment Management Ltd” <email@example.com>
Date: 1 November 2011 14:38:29 GMT+08:00
Subject: Formal Rates for 1 to 5 Year Terms in LMs Conservative and Enhanced Income Funds
1 November 2011
For Distribution Through Advisers / Intermediaries Only
Rates NOW Available for 1 to 5 Year Terms in the LM Managed Performance Fund and the LM Australian Income Fund – Currency Protected.
To meet current investor demand for longer term, consistent income we have formally introduced rates for four (4) and five (5) year investment terms in the LM Managed Performance Fund and the LM Australian Income Fund – Currency Protected.
Both Funds invest in only Australian assets benefiting from Australian’s stable and resilient economic performance. Whilst the assets of each vest within the Australian property sector, they are different and complementary Funds within an investment portfolio.
The LM Managed Performance Fund and the LM Australian Income Fund – Currency Protected are available for investment in all major currencies across various fixed investment terms, without currency risk. Each Fund has a demonstrated track record for consistently delivering its targeted outperformance of cash rates. Investment rates are not fixed and differ according to the Fund, currency and investment term selected, with longer investment terms attracting slightly higher rates than the shorter terms.
The LM Australian Income Fund – Currency Protected provides conservative income, achieving its performance target of around 2.00%pa to 3.00%pa above official cash rates through its investment in fully secured senior debt positions across the Australian property market. Generally, the debt to security value ratio is around 65.00%.
Following is a snapshot of some of the current rates for the LM Australian Income Fund – Currency Protected.1
|1 Year||2 Years||3 Years||4 Years||5 Years|
Download comprehensive rate sheets for the LM Australian Income Fund – Currency Protected, effective 1 November 2011 here.
The LM Managed Performance Fund provides enhanced income achieving its target performance of around 4.00%pa to 5.00%pa above official cash rates through proactive ownership like positions it takes within the Australian property market. It structures its investment positions as commercial and development loans to ensure all profits are funnelled through the Fund and distributed to investors as income.
Following is a snapshot of some of the current rates for the LM Managed Performance Fund.1
|1 Year||2 Years||3 Years||4 Years||5 Years|
Download comprehensive rate sheets for the LM Managed Performance Fund, effective 1 November 2011 here.
LM Investment Management Ltd
The global pathway to Australian investment solutions
© LM Investment Management Ltd 2011
Responsible Entity & AFSL No. 220281
1 Effective rates are net of 10.00% non-resident withholding tax.
LM is the product issuer, is licensed as a Fund Manager (Responsible Entity in Australia) and not as a provider of financial advice.
Past performance is not a reliable indicator of future performance.
The LM Australian Income Fund – Currency Protected is not a bank deposit and has a different risk profile to cash.
For calculations of interest distribution, please refer to the rate sheets linked in this communication.
Martyn Terpilowski’s Response to Peter Drake
From: Martyn Terpilowski
Sent: Wednesday, November 02, 2011 10:01 AM
To: ‘Peter Drake’
Cc: ‘Shauna Larkin’
Subject: FW: Formal Rates for 1 to 5 Year Terms in LMs Conservative and Enhanced Income Funds
It is absolutely amazing that you can carry on getting away with this, but I presume unscrupulous brokers are only too happy to lock in the client for 5yrs and take the commission every year when they know clients cannot get their money out anyway… As you know this is currently still being sold as a 1 year product even though my client has been in the ‘queue’ to get his money out for 2 years since his 1 year term ended… so that is 3 years and he thought he was investing for 1 year. Since I realised this I have obviously done no more LM business for investors wanting a 1 year product, but you continue to advertise as such and brokers continue to sell due to your commission levels… the whole thing leaves a very nasty taste in my mouth and the obviously if you get people ‘officially’ locked in for 5, rather than locked in anyway (when they thought it was 1 year) – it takes the heat of you.
I am guessing you indemnify the commissions and pay the full 5 yrs in day 1 also – to keep your ‘best brokers’ happy!!!!!
This fund is closed to redemptions but is still being sold to people as a 1 year product!!!! Do you think this is ethically correct? You hide behind semantics with the story of a ‘queue’ which may be true but reality is if you have people in the queue for 2 yrs plus it is closed and should not be sold… as I have told you before and I am sure you are aware – there are names for schemes like this and they cannot be sold in many regulated locations in the world…
Can I please have an update on [XXXX]’s money?? He wants it back…. The fact he is still being mailed by Magellan trying to sell him more makes him absolutely furious…as he knows it is all lies, lies and more lies…