Legal action launched by LM Investment

Peter Drake – LM Investment has launched legal action against the journalist and publication for article containing a large number of misstatements of fact.

The following addresses errors in the article in a sequential order.

The LM First Mortgage Income Fund was frozen following the Global Financial Crisis (GFC) like many other mortgage funds in Australia. The audited Fund value is 73 cents ($1.00 prior to the GFC) and has raised a conservative 27 cent provision, of which 14 cents remains unrealised as of 4 June 2012.

The Fund has, contrary to suggestions in the article, performed well relative to many of its peers in a difficult market.

LM’s management is committed to achieving the best possible performance going forward.

To alleviate concerns arising from the article, this memorandum provides some accurate information in relation to matters addressed in it. If after reading this you have any remaining concerns, please contact LM on +617 5584 4500.
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First payout expected from frozen Aussie fund

Thirteen hundred New Zealand investors have put money into the Currency Protected Australian Income Fund run by Queensland-headquartered LM Investment Management.
More than a thousand New Zealanders who had more than $100 million dollars tied up in an embattled Australian fund are expected to get their first payouts by March.

Thirteen hundred New Zealand investors have put money into the Currency Protected Australian Income Fund run by Queensland-headquartered LM Investment Management.

This fund acted as a feeder into LM First Mortgage Income Fund, which has a number of commercial Australian property investments but was frozen in the wake of the global financial crisis.

At the time of the freeze in March 2009, New Zealand investors had A$95 million ($119 million) in this fund, although LM expects they will now only get around 59c in the dollar back.

No payouts of capital have been made since the fund was put on ice but in its latest update to investors, LM says it hopes to make initial distributions to them by March.

LM could not reveal how much investors should expect in the first payment, although its update said that it intended to repay capital on a periodic basis.

The payment process is expected to take around two to three years, with payments likely to be made each quarter.

LM was founded in 1993 by expat New Zealander Peter Drake and claims to have assets worth more than A$3 billion under management.

The company was forced to go on the PR offensive last year after another Australian fund management firm, Trilogy Capital Group, attempted to take over two of its funds.

While Trilogy criticised LM’s management of the First Mortgage Income Fund and said it lacked a clear strategy, the latter responded by calling Trilogy a “corporate fund raider” and accused it of spreading misinformation.

Trilogy successfully replaced LM as the responsible entity for one of the funds it had eyed up following a meeting held in Sydney in early November.

LM continues to sell Australia to the world. Australia is becoming a respected destination for offshore investment houses who are
seeking capital growth, income returns and capital stability.
We look forward to 2013 and reporting to you on further progress that we record. I wish you a safe and happy Christmas break.

— Peter Drake, Chief Executive

Peter Drake’s 2012 Review

We have enjoyed introducing LM and our range of Australian funds to financial intermediaries and their clients across a further 12 countries this year. We thank you for utilising one or more of our funds, and look forward to providing ongoing friendly and efficient service, as well a selection of products that provide the global pathway to Australian investment solutions.

LM has been fortunate to enjoy a year of growth in funds under management and the promotion of new funds into global markets. LM offers Australian asset funds across the world via a growing network of licensed intermediaries, global platforms, institutions and pension funds. Total assets under management and development are in excess of A$3.3 billion. With the inclusion of a new office in Toronto, LM now promotes Australian investment solutions to more than 73 countries from nine global offices.

Media Statement from Peter Drake, Chief Executive Officer.

LM takes critical steps to provide further comfort to closed fund investors

LM Investment Management Ltd (LM) has moved decisively to further reassure its investors in the closed LM First Mortgage Income Fund (Fund).

Chief Executive Peter Drake said that LM was determined to continue its orderly sales of Fund assets, commenced before its closure;and to commence periodic capital distributions to investors in 2013.

He said that investors would also receive catch-up income, with two months of payments to be distributed in January 2013.

“We have conducted a thorough review of all aspects of the closed Fund and its operations, and we’ve listened very, very closely to the wishes of our investors.

“We believethat on balance, it is in the best overall interests of closed fund investors to continue the sales program, with an orderly sale of all remaining assets.

“All investors will share pro-rata in the liquidity generated by the asset sales program. The first pro-rata capital distribution is scheduled for March 2013 and will most likely occur quarterly.

“Every investor will automatically receive their pro-rata share of any capital distribution made from the Fund, without having to lodge a withdrawal request.

“I need to emphasize that this is a strategy for an orderly, commercial sale and not a damaging fire sale of assets. Our team has been working diligently to prepare assets for sale at the most appropriate time.

“We want to see investors’ investment capital returned as quickly as commercially possible and estimate that this program will take two to three years to complete,” he said.

Mr Drake said that LM had also moved to provide certainty to the Fund and investors by successfully renegotiatingits loan facility with the Fund’s current financier, Deutsche Bank AG.

He said the facility, capped at $25 million, would be in place from1 January 2013 until 30 June 2014, with an option for a further 12 months at LM’s discretion.

“The Deutsche Bank facility is an important component of the fund’s orderly sales program.  It provides certainty of required capital for those assets where additional development or enhancement of the asset will help in achieving a more favourable sales price.

“The extension of this facility also means that the fund can immediately begin a catch up of investor distributions and commence the program of capital distributions with liquidity from the sales campaign, which otherwise would have gone to the repayment of the Deutsche Bank facility,” he said.

Mr Drake said that LM Directors had written to all closed fund advisers and investors to outline the current strategy.

The strategy update also advised:

  • Confirmation of the unit price at 59 cents as reflected in the latest audited financial statements for the year ending 30 June 2012.
  • The background to the current unit price
  • Ernst & Young’s ongoing independent review of the values of each Fund asset at a minimum of every six months
  • The timing of a BIS Shrapnel report to investors in the Fund, expected to be distributed in the New Year.
  • The finalising the RG45 Report to all investors by January 2013.  This report is for the purposes of ASIC’s Regulatory Guide 45 Mortgage Schemes, improving disclosure for retail investors.
  • Further advice of redemptions and monthly income distributions

LM’s products hold Australian only assets and are distributed and available for investment only via a global network of independent financial advisers, intermediaries, wholesale platforms, private banks, superannuation and pension funds, corporate and institutional investment consultants spanning 73 countries.

20 investment facts Peter Drake values about Australia

As we promote Australia as an investment destination to the world, we reveal statistical evidence that makes an investor consider “why not Australia”. Following are a few facts that may surprise you about Australia.

  1. AAA sovereign credit rating (Standard & Poor’s, Fitch).
  2. 4 of the world’s 9 AA-rated banks.
  3. Fourth largest managed funds industry in the world (A$1.8 trillion).
  4. The second most resilient economy in the world.
  5. 21 years of uninterrupted economic growth.
  6. Safest country in the world to invest in, alongside Canada, Norway and Switzerland (OECD).
  7. Third largest banking sector in the world, by market capitalisation behind China and the US.
  8. A resilient export sector due to high quality commodities and geographical location, supported by demand from Asia, India and developing economies.
  9. A financial sector with a market value larger than the entire Eurozone.
  10. Best performing stock market in the world (averaging 7.2% over the last 112 years).
  11. Second largest Real Estate Investment Trust (REIT) market in the world.
  12. A higher GDP per capita than the US, UK, Germany, France, Canada or Japan.
  13. AUD is the world’s sixth most traded currency.
  14. Low levels of debt, currently at 8.30% of GDP.
  15. The labour market has remained buoyant, with low unemployment at 5.10%.
  16. The mining sector only accounts for 2.00% of national employment.
  17. Over the five years to November 2011, around 1.1 million jobs were created in Australia.
  18. Inbound tourism represents Australia’s largest services export, contributing A$73.3bn in 2010-2011 and accounts for approximately 2.50% of GDP.
  19. Education contributes a significant 4.75% to GDP.
  20. Australia has one of the world’s best performing property markets, with strong demand continuing to drive prices in all sectors.
  21. Bonus fact: With a naturally growing population and strong, qualified immigration, more than 250,000 new homes per year are required to satisfy demand.

The closed LM Funds

The LM First Mortgage Income Fund is one of some 80 Australian funds that were frozen due to the Global Financial Crisis. The assets of the fund have been sold down in an orderly manner to repay bank debt and some distributions to investors.

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