Below is an announcement released by Peter Drake four months before LM went into voluntary administration. It is followed by Martyn Terpilowski’s response.
Peter Drake’s Announcement
From: LM Investment Management Ltd [mail@LMaustralia.com]
Sent: Wednesday, November 14, 2012 4:47 PM
To: Martyn Terpilowski
Subject: The LM group is solid and financially sound
Financial Adviser & Intermediary Information Only
14 November 2012
THE LM GROUP IS SOLID AND FINANCIALLY SOUND
We are pleased to provide you with a concise update on LM and the LM funds, to address any concerns you or your investors may have following some recent misleading and inaccurate information released in the public domain. We assure you that recent articles published regarding the LM closed funds in no way affects the open LM funds that you support.
LM Investment Management Ltd is a diverse multi-fund manager currently managing nine Australian funds with total assets under management with a realisation value of A$3 billion.
The LM group is solid and financially sound. The LM funds and their assets are healthy. Importantly, each LM fund is a legally separated entity, with assets held separately to one another in a unit trust on behalf of investors in each fund. All fund assets are held in trust by the independent custodian, The Trust Company (PTAL), a wholly owned subsidiary of The Trust Company, one of Australia’s largest trustees which holds A$120 billion of assets under supervision.
In the height of the financial crisis many markets around the world, including Australia, suffered as a result of the highly illiquid banking sector and market uncertainty. One of the nine funds that LM manages, the LM First Mortgage Fund was closed in 2009, ultimately to protect investor capital. The fund was closed not as a result of defaulting loans, but due to the fund’s banking partner, the Commonwealth Bank of Australia (CBA), making a unilateral decision to pull out of all commercial fund positions across Australia. As a result, the fully serviced five year line of credit facility that the fund held with CBA at a value of A$150 million was pulled with less than one month’s notice. The bank’s bureaucratic view meant the fund had to close in order to repay this facility as a priority. Australian banks also made a decision to guarantee all bank deposits, which caused a run on this entire asset class in Australia. This one LM fund was one of thousands of other funds around the world that was gated to protect investors.
Since the closure of the LM First Mortgage Income Fund, LM has continued to prudently manage the assets on behalf of investors to retain a reasonable unit value relative to the market. Since the fund’s closure, LM has engaged in an orderly sell down of the fund’s assets, with a view to returning capital to investors.
LM has managed and continues to operate the fund appropriately, in total accordance with Australian Corporations Law, and the fund’s constitution. The fund is fully audited for both financial and compliance of processes with the law and the fund’s constitution. LM’s strategy for the fund will see capital distributions to investors shortly recommence.
Trilogy is a fund raider that targets closed funds using investor information which, due to a loophole in the Australian Corporations Act, we as fund managers are legally required to hand over. Trilogy is not well regarded in Australia, and has a deplorable track record. The only other fund Trilogy has taken over to date is the City Pacific First Mortgage Fund, in 2009. Trilogy failed to deliver on its promises, and since taking over the City Pacific First Mortgage Fund more than three years ago the unit price has plummeted to A$0.13 under their “management”.
Unfortunately, due to the support of five large unit holders who held 53% of a feeder fund of the LM First Mortgage Income Fund, the LM Wholesale First Mortgage Income Fund, Trilogy were successful in their bid for the wholesale fund. Trilogy was only successful in converting five investors within the fund, out of a total 237.
The LM Wholesale First Mortgage Income Fund represents less than 2.4% of LM’s total funds under management. This fund holds no assets and operates in a feeder fund capacity only. As such, LM retains full control of the master fund and its assets. Trilogy was unsuccessful in its bid for other LM feeder funds, due to LM’s overwhelming global adviser support and Trilogy’s well documented poor track record.
LM is confident this will be the only fund Trilogy will be successful in replacing LM as responsible entity, and that this will go no further. This is, unfortunately, something that has only caused disruption and angst for our investors, but little else will come of it.
It is important to note that the LM Australian Income Fund and LM Managed Performance Fund are open, fully operational and their assets are separate and segregated from those of the closed LM funds.
Whilst this act of corporate piracy is abhorrent, it in no way distracts from the daily business activities of the LM group.
For further assistance, please contact your LM regional manager or the LM client relations department on +61 7 5584 4500.
Chairman and Chief Executive Officer
LM INVESTMENT MANAGEMENT LTD
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The LM products are solely for distribution via financial advisers and intermediaries. LM requests investors consult a financial adviser before making any decisions on their investment.
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Responsible Entity & AFSL No. 220281 ABN 68 077 208 461
Martyn Terpilowski’s Response
From: Martyn Terpilowski
To: ‘Martin Venier’
Subject: FW: The LM group is solid and financially sound
Do you not think these constant mails defending LM, just makes things look worse?… Clearly LM are not financially sound or we would not have all these problems…. It does not generally happen with a financially sound company…. 90% of brokers do not give a damn whether you are sound or not as they give you money for commission only…. There is no other reason for anyone to place money with a company that has so many problems and terrible publicity…. It is just like Axiom Legal Financing.. That was a darling of the broker market as paid big coms, but obviously was always going to blow and I sat in your office and named that fund – a number of times.. and guess what – it has blown…. I have a 100% trackrecord of predicting these things so remain very worried about LM, but ppl could not put enough money in Axiom and it certainly was not to help their clients… it is a disgusting industry and when there are other options out their it beggars belief that you would raise any new money, but we all know the reasons… The point is, the guys who still sell your fund do not really care if LM go belly up, they just want to get rich quick.. The ppl who actually care and have an ounce of financial knowledge, do not believe 90% of what is said and have severe concerns…These emails – do not help either group.