43 cent returns for debenture investors

Investors in the debentures of 15 failed finance companies and mortgage trusts will have lost more than half of their money, on average, by the time the administrators and liquidators of the funds have cleaned up the mess left by directors and management.

The Australian Securities and Investments Commission yesterday published a snapshot of the likely return to investors in all the registered financiers and trusts that failed since March 2008. (This covers most failures since the onset of the credit crunch, but excludes some earlier high profile collapses such as those of Westpoint, Fincorp and Australian Capital Reserve.)

In some cases administrators expect returns to be "substantial", as in the case of South Eastern Secured Investments, a Gippsland-based financier that failed in February 2009. This was the largest failure of the 15, with $178 million in money owing to investors.

In one or two other cases there will be "significant" returns, including Bidgee Finance, another rural financier based in Mildura, with $18 million invested, is also looking at a significant return.

A couple of mortgage schemes, operated by Diverseport and Grenfell Securities, will return around 50 cents in the dollar.

Losses elsewhere may be steep. Investors holding $150 million in debentures from Elderslie Finance can expect to recover less than 10 cents in the dollar.

On ASIC's survey of the failed financiers investors hold $707 million in debentures, and they look likely to recover around 43 cents in the dollar.

There is no specific mention in the ASIC review of the related issues around the scores of frozen mortgage trusts and income funds, a trend that started before the onset of the GFC late last year but soon mushroomed.

A year ago research firm Morningstar compiled a list of 69 frozen funds with combined funds under management of $24.5 billion.

While there's no update on the value of investments now affected, Morningstar's list has expanded to 74. The majority of funds remains frozen. In a minority of cases limited or periodic withdrawals are allowed.

None of the funds has lifted restrictions altogether, while some continue to advertise for new funds.