The LM Emails (#6): Director, Lisa Darcy, Inadvertently Admitted that Redemption Payments Were Suspended

One of Martyn Terpilowski’s colleagues had a client invested in LM’s Managed Performance Fund. The client was scheduled to receive a redemption payment in May 2009, but one year afterwards, he still hadn’t received his money.

In July 2010, after persistent requests from Martyn’s colleague, LM said they expected to make the payment by September that year.

September came and went, but the client still hadn’t received his money.

The client was understandably furious and warned LM that he was preparing to take legal action. Given that he held a senior position at a well-known investment bank, LM probably had no choice but to take his threat seriously.

By the end of that year, the client received his money.

Martyn believes this client was one of the last “direct” investors allowed to exit. (“Direct” means he wasn’t invested through a portfolio bond).

In the emails below, the client is referred to as “Client 2”. The names of several LM staff are also mentioned: Shauna Larkin (admin), Heather McLeish (sales manager), and Lisa Darcy (director).

The email written by Lisa Darcy was forwarded to Martyn. When Martyn responded, he highlighted one of Darcy’s sentences in red in order to make a point. The sentence strongly suggests that redemption payments were suspended (not merely delayed as LM persistently claimed).

Darcy also claimed that redemption “delays” were partially a result of needing to meet margin calls related to currency hedging. Martyn argued that this excuse was unacceptable. His colleague’s client had invested in the Managed Performance Fund before it was a multi-currency fund, which means he shouldn’t have been exposed to currency risk at all.

Another sentence written by Darcy is highlighted in blue. She noted that the Managed Performance Fund was “for sophisticated investors only” (i.e., for investors with significant market knowledge and/or substantial assets). Heather McLeash also made the same claim in another set of emails published yesterday (see here). Their statements raise serious questions about why the MPF fund was later sold via portfolio bonds to so many people who obviously did not qualify as “sophisticated investors”.

March 2010

Shauna Larkin

From: Shauna Larkin <slarkin@lmaustralia.com>
To: [Client 2]
Sent: Fri Mar 05 12:45:24 2010
Subject: LM Managed Performance Fund redemption – [#########]

Hi [Client 2],

I know the fact that we have been delaying withdrawals in the fund has been frustrating to say the least.

The end of quarter 1 is fast approaching.  We are finalising a written update at the moment and it will be available next week.  It will cover time horizons for payments and the things we are doing to meet them.

You will receive a copy of this update (as will your financial adviser) and I will discuss via phone the impact this will have on you then.  I will give you a call next week.

I look forward to speaking with you then.

Kind regards

Shauna

Shauna Larkin
Client Relations – Treasury Services
LM Investment Management Ltd

Client 2

From: [Client 2]
Date: Fri, 5 Mar 2010 19:00:18 +0800
To: [Martyn’s Colleague]
Subject: Fw: LM Managed Performance Fund redemption – [#########]

Fyi

[See Larkin’s message.]

Martyn’s Colleague

From: [Martyn’s Colleague]
Sent: Friday, March 05, 2010 8:26 PM
To: Martyn Terpilowski
Subject: Fw: LM Managed Performance Fund redemption – [#########]

[Also see Larkin’s message.]

Sent from my BlackBerry® wireless device

Martyn Terpilowski

From: Martyn Terpilowski
Sent: 06 March 2010 14:40
To: [Martyn’s Colleague]
Subject: RE: LM Managed Performance Fund redemption – [#########]

Joke mate… I have an issue with this also…

MT

July 2010

Heather McLeish

—–Original Message—–
From: “Heather C. McLeish” <hcmcleish@lmaustralia.com>
Date: Tue, 13 Jul 2010 11:39:15
To: [Martyn’s Colleague]
Subject: Are you back in Japan?

I wanted to give you an update on [Client 2’s] redemption.

Please let me know where its best to reach you.

Cheers,

Heather

Martyn’s Colleague

—–Original Message—–
From:[Martyn’s Colleague]
Sent: Tuesday, 13 July 2010 11:05 AM
To: Heather C. McLeish
Subject: Re: Are you back in Japan?

I am not in Japan can you e mail as I am speaking to him today.

Sent from my BlackBerry(r) wireless device

Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 13 July 2010 03:28
To: [Martyn’s Colleague]
Subject: RE: Are you back in Japan?

No problem.

I spoke to the directors this morning and it looks like we will be paying [Client 2] out in September. I am not sure what you would like to tell him as you are no doubt as hesitant as I to give dates when they could change, so I leave that up to you. Good news anyway!

All the best,

Heather

Martyn’s Colleague

—–Original Message—–
From: [Martyn’s Colleague]
Sent: Tuesday, 13 July 2010 11:30 AM
To: Heather C. McLeish
Subject: RE: Are you back in Japan?

That would be for the whole amount and would take place after you have paid the 29 in the line before him.

[Martyn’s Colleague]

Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 13 July 2010 03:31
To: [Martyn’s Colleague]
Subject: RE: Are you back in Japan?

That would be the whole amount yes and that timeline takes the other redemptions into account, yes.

October 2010

Martyn’s Colleague

—–Original Message—–
From: [Martyn’s Colleague]
Sent: Thursday, 7 October 2010 2:26 PM
To: Heather C. McLeish
Subject: RE: Are you back in Japan?

Heather

I have heard nothing from you on [Client 2’s] redemption.

Can you update be by return please?

Thank you.

[Martyn’s Colleague]

Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 08 October 2010 06:53
To: ‘[Martyn’s Colleague]
Subject: RE: Are you back in Japan?

Hello [Martyn’s Colleague],

Apologies for the delay. I was just able to get an update on this client’s account.

No good news I am afraid. The currency movements have not been in LM’s favour requiring funds to go to the margin account making the September time frame to pay out your client null and void.

I realize how frustrating this is, honestly I do, but it is still a waiting game. His redemption is very near the top of the queue, so his payout should be within the next couple of months.

I am sorry to have nothing better to tell you.

Best regards,

Heather

Martyn’s Colleague

—–Original Message—–
From: [Martyn’s Colleague]
Sent: Friday, 8 October 2010 3:56 PM
To: Heather C. McLeish
Subject: RE: Are you back in Japan?

Heather

You virtually guaranteed that it would be in September and I re assured the client accordingly and prevented him pursuing legal action against you.

Please confirm the exact position in redemption queue and when exactly he will be redeemed.

I expect he will now launch a legal case against LM.

Is his coupon still being paid?

[Martyn’s Colleague]

Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 08 October 2010 07:58
To: [Martyn’s Colleague]
Subject: RE: Are you back in Japan?

[Martyn’s Colleague],

I was assured that that was the case at the time I told you.

As I mentioned before it is impossible to confirm the exact redemption date.

It is his right to seek legal action, however the PDS [Product Disclosure Statement] is clear on this.

Yes, he is still continuing to earn the same interest he was during the true investment time. It is the least we can do for the delay.

Best regards,

Heather

Martyn’s Colleague

—–Original Message—–
From: [Martyn’s Colleague]
Sent: Friday, 8 October 2010 4:29 PM
To: Heather C. McLeish
Subject: RE: Are you back in Japan?

Heather

Are you still selling funds without disclosing to investors that they are closed for investment?

[Martyn’s Colleague]

 Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 08 October 2010 08:36
To: [Martyn’s Colleague]
Subject: RE: Are you back in Japan?

Hello [Martyn’s Colleague],

Advisors who sell this fund that I work with do disclose the redemption delays. It is not a closed fund.

 Martyn’s Colleague

—–Original Message—–
From: [Martyn’s Colleague]
Sent: Friday, 8 October 2010 4:42 PM
To: Heather C. McLeish
Subject: RE: Are you back in Japan?

Do you disclose the redemption freeze on your literature?

[Martyn’s Colleague]

Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 08 October 2010 08:52
To: [Martyn’s Colleague]
Subject: RE: Are you back in Japan?

The redemptions are being paid, albeit at a slower rate than they would be in normal market conditions. Please refer to the August portfolio update.

Martyn’s Colleague

—– Original Message —–
From: [Martyn’s Colleague]
To: Heather C. McLeish
Sent: Fri Oct 08 18:04:49 2010
Subject: RE: Are you back in Japan?

Heather

Do you not feel that you have a duty of care to your investors to disclose that there are parties who have been waiting 21 months for redemptions. This redefines the idea of ‘at a slower rate than normal’

I have just spoken to [Client 2] and he intends to launch a legal suit against LM.  I really wish it had not come to this but I have held him at bay for as long as I can and I now feel let down by your promise of September redemptions.

I am completely at a loss to understand your exchange rate rationale.  I was under the impression that you were awaiting certain sales of land.  He invested in AUD [Australian dollars] so how do exchange rates have any bearing?

If you could at least provide a credible explanation for the delay I may be able to take some heat out of this situation.

[Client 2] is a highly experienced and very senior investment banker who has been up until now very patient.  He now sees this as a point of principle and will engage the very best legal council to take on LM.  Surely you could have at least made a part payment by now? LM have damaged my relationship with one of my very best clients and I now feel terribly let down and would appreciate you passing on my concerns to Peter Drake.

If you recall I attended a presentation months ago in Tokyo and it was mentioned repeatedly that LM was paying it’s coupons on time but no mention was made at that gathering that effectively redemptions have been frozen on this fund. You still have not yet replied to my question about the position of [Client 2’s] request in the queue.

I await your response on this matter and consider it appropriate for Peter to reply to my wider concerns.

Regards

[Martyn’s Colleague]

Lisa Darcy

—–Original Message—–
From: Lisa Darcy
Sent: Sunday, 10 October 2010 4:53 PM
To: Heather C. McLeish
Subject: MPF update

Dear Heather

Please pass the following information to [Martyn’s Colleague] in relation to his queries [above]. I am also happy to speak with [Martyn’s Colleague] in person if he requires anymore explanation. I have also passed this on to Peter Drake who has read both [Martyn’s Colleague’s] email and my reply.

Firstly, an update on the Australian Property and Credit markets.

The property market and the general economy in Australia (as evidenced by the strong AUD) has held up well over the last few years, however the credit and financial markets still remain extremely tight.

The banks in Australia are just not lending to the levels they were prior to the GFC [global financial crisis], in particular in the commercial and business sector and more specifically transactions over $5m are just not happening in the current market.

Commercial lending transactions when they do occur are taking as long as 8-12 months  – this makes it very difficult for sellers and purchasers alike.

This is the major factor which has led to the delay in redemption payments to investors as the funds assets are primarily in this sector in Australia.

Several of the assets within the fund are currently available for sale – they include completed developments in the residential, commercial and industrial sectors in Australia – again the sales process is influenced by the availability of credit which as I mentioned above is slow.

One of the larger investments in particular which is located in SE QLD [South East Queensland] (a growth corridor) was offered for either complete or partial sale earlier in the year – this did not eventuate due to reasons outlined above – the fund will continue to hold and develop this asset as it continues to and always did represent an excellent investment opportunity for the fund.

Just so you are aware, the only reason this particular property was ever offered for sale was to satisfy those investors with a redemption request as it was always meant to be a long term hold – bearing in mind the decision to invest in this asset was taken well before the GFC.

The MPF [Managed Performance Fund] is a vehicle which is designed for sophisticated investors only as the nature of a large component of its assets are in the property development sector in Australia (this is how we provide the additional returns) – as we have seen over the last year in particular this can lead to timing issues in relation to the realisation of assets back into cash and cause delays in redemption payments.

The fund also offers investments in multi-currency – this enhances the fund as an investment choice for advisers and their investors.

In order to provide this the fund needs to hedge its FEX [foreign currency] exposure via two providers – they require a certain percentage of margin which increases as you know with the very strong increase in the AUD.

Understand that [Client 2] invests in AUD – however as the fund is pooled we need to manage the FEX margin exposure across the whole book as leaving these positions uncovered could lead to a loss at fund level and could impact all investors.

We also understand how this may seem a little odd to an investor with AUD exposure only but this is the way the fund is structured and we must cover these calls as a priority over redemption payments.

Conversely, the strength in the AUD is a good sign however of the ongoing performance and expectations of the Australian economy and even though this issue is extremely frustrating for those investors who wish to exit – over the medium to longer term this will see the credit and financial markets return to normal and the fund operating within its normal redemption timeframes once again.

[Client 2’s] payment will be one of the first to be released once our funds management committee determines that the assets are protected and that we can apply funds to redemption payments again.

Please let me know if you have any further questions

Lisa

Heather McLeish

—–Original Message—–
From: Heather C. McLeish [hcmcleish@lmaustralia.com]
Sent: 12 October 2010 00:09
To: [Martyn’s Colleage]
Subject: FW: MPF update

Good Morning [Martyn’s Colleague],

Please see the [above] email from Lisa in regards to [Client 2’s] redemption.

You have relocated to HK [Hong Kong], correct? Please let me know if you have time for a conference call this week. Lisa will be in Tokyo next week if you are going to be here we can arrange a meeting.

Best regards,

Heather

 Martyn’s Colleague

—–Original Message—–
From: [Martyn’s Colleage]
Sent: Tuesday, October 12, 2010 2:29 PM
To: ‘Martyn Terpilowski’
Subject: FW: MPF update

what dya think?

See [above]

[Martyn’s Colleague]

Martyn Terpilowski

From: Martyn Terpilowski
Sent: 12 October 2010 15:09
To: [Martyn’s Colleague]
Subject: RE: MPF update

Mmmmmm

1) why are they still taking money in, if this is the case? This should not be allowed and are brokers being truthful when selling this fund (i.e telling clients there are redemption issues).

2) [Client 2] invested in the fund BEFORE it was multi-currency and therefore it is totally unacceptable that this is used as an excuse and is basically not what he bought.

3) why were we told when LM knew already that were delays that there were no delays? That remains a question that has never truly been answered.

4) the comment I have increased the size of and coloured red [above] in regards to [Client 2’s] payment – suggests infact that as I suspected – No payments are being made right now. This makes the fact that they are taking money in even worse.

Martyn

Leave a Reply

Your email address will not be published.