In the investment management, banking and financial services game - reputation, name and credibility are everything, they say. A few reputations and brand values have taken some hits in recent times. The credit crunch, finance company collapses and economic downturn have caused all sorts of ramifications for those managing and advising on investment.

The first to feel the affects of the global credit crisis were fixed interest fund mangers who started to report negative returns as CDOs and Mortgage Backed Securities values plunged on marked-to-market revaluations. ING was one name tarnished with this negative news for their unit holders. Next were investment unit trusts being frozen on investors as a rush of redemptions caused liquidity problems. Many fund managers now know what it is like to be a finance company when investor confidence is lost, money is pulled and liquidity pressures result. AMP and AXA unlisted property trusts have now also experienced the same ignominy. The freezing of withdrawals from these managed funds to protect the interests of investors remaining in for the long haul is prudent in these circumstances.

We thought that most of the mortgage trusts and contributory mortgage schemes in New Zealand disappeared with the last recession/property crash in 1991, but alas along with others we were surprised to see that there is approximately $2 billion invested in these vehicles. Over the past month, over $750 million of such mortgage funds have been frozen with Guardian Mortgage Trust ($249m), Canterbury Mortgage Trust ($250m), Tower Mortgage Trust ($60m) and the Totara First Mortgage Fund ($242m) the most prominent.

Yet again, financial advisors are taking the brunt of the criticism for pushing their retail investor clients into such illiquid investments. The value of many investment advisory/financial planning firms has reduced to near zero. Vestar (formerly Northplan) has been sold to George Gould as he builds the Gould Wealth Management franchise. So far 1600 Vestar clients with $400m of managed money have joined Gould Wealth Management.
We have also observed some very poor investment policy and practice by broking houses advising on and managing “Cash” investment portfolios. The definition of “Cash” is meant to be interest rate re-sets no longer than 12 months, but high levels of liquidity in the underlying securities being invested into. “Liquid” means easily and readily switched to cash. Long-dated floating rate Mortgage Backed Securities, CDOs and long-dated corporate Floating Rate Notes should never be in a Cash portfolio, as they do not meet the liquidity test.