About 300 investors in Hubbard Management Funds (HMF) have been told by statutory managers that the reported value of their investments at March 31 was overstated by at least 25 per cent.
Richard Simpson and Trevor Thornton of Grant Thornton New Zealand also warned that investors in another company operated by Timaru businessman Allan Hubbard, Aorangi Securities Ltd, may suffer a loss in their investments.
"As statutory managers we are aware that this news will be a shock and a disappointment to the many people who have invested in these businesses operated by Mr Hubbard," Simpson said.
"We are mindful that some people depended on the flow of funds from HMG and Aorangi for their day-today living and that the freezing of the funds under statutory management has created hardship for them. For those people, an emergency fund has been established."
Simpson and Thornton, made the comments in their second report to investors.
The company says Hubbard allowed Aorangi to accept deposits of about $96 million from investors on call, then invested those funds in investments or loans which were nearly all long term in nature.
"Much of the money is invested in minority interests in approximately 25 farms as well as in a charitable trust administered by Mr Hubbard and a number of other commercial entities, some of which are of poor quality. These investments do not generate sufficient income to pay the interest due to Aorangi's investors."
Many of the farming businesses invested in were highly geared, and in the case of the charitable trust, many of the loans were interest free and some would not be recoverable, the managers said.
"While we hope to be able to make a small repayment to the Aorangi investors in October 2010, Aorangi has only a small amount of available cash and it will take a long time before the investments can be realised."
"HMF has deposits of about $82 million and is invested in public company shares, venture capital funds and unlisted companies. The total value of HMF is at least 25 per cent less than reported by Mr Hubbard to investors in the March 31 statements this year.
"The reason for this is that some of those statements included investments and cash balances, which did not exist."
The value of the fund was likely to have suffered further losses since the end of March, from a weakness in markets, the managers said.
"The investment profile is not consistent with what would be appropriate for a typical investor in HMF. There is a lack of blue chip investments and the composition of the fund's portfolio generally means that the fund is high risk in nature."
Simpson said the company had a number of issues to work through and hoped to be able to report back to investors again at the end of next month.
- NZ HERALD ONLINE