Few may invest alongside AOFM

The Australian Office of Financial Management announced last week how it will spend the first $1.0 billion of its $8.0 billion of funds available for investment in RMBS.

AOFM will invest $500 million into the senior tranches of RMBS issues to be undertaken by FirstMac and Members Equity Bank, but the big question is who is going to invest alongside AOFM. AOFM has said it will be a "cornerstone investor" in these transactions, which presumably means it does not expect to be the sole investor.

As has already been suggested here, it may be that the only other investors will be the banks that are arranging the issues. It seems unlikely that there are going to be too many institutional investors with the capacity to buy any RMBS, at the present time.

Fund managers are bleeding as investors seek to move their funds into cash. This is not only occurring at the retail level, it is also occurring at the institutional level, as members of super funds change their investment preferences to cash.

Alan Kohler may well have got it right, when he said last week in Business Spectator, that we are heading back to the swinging 60s, when all money was kept in bank deposits and there was no funds management industry. And to think less than a year ago, the Commonwealth Government was keen to promote funds management as an export industry.