Money Editor for NZ Herald

Perpetual confronted over $28m loan

Patrick Middleton, Perpetual chief executive officer. Photo / Chris Skelton
Patrick Middleton, Perpetual chief executive officer. Photo / Chris Skelton

Trustee company Perpetual faces a "please explain" notice from its professional association over the handling of a $28 million related party loan.

Perpetual, owned by Pyne Gould Corporation, has been under scrutiny by the Financial Markets Authority since May after the statutory supervisor of two Perpetual funds - Trustees Executors - reported concerns to the investment watchdog.

Last week Trustees Executors went to the High Court to have one of the funds - the $56 million Perpetual Mortgage Fund - temporarily placed into a moratorium because of a high level of requests by investors to get their money out.

The firm also received approval from the court to appoint accountants WHK to monitor the activities of Perpetual in its management of the funds.

A further request by Trustees Executors to get the $47 million Perpetual Cash Management Fund frozen was adjourned until next month.

Perpetual is one of five full members of the Trustee Corporations Association, which sets the standards for the industry.

Under its code of practice members agree to at all times "carry out their duties in the best interests of the investors or scheme members and completely independently of the interests of the issuer, promoters or managers of the investment or scheme".

Trustee Corporations Association executive director David Brown Douglas said the court judgments released on July 5 by the FMA were particularly worrying and the association had asked Perpetual to explain itself.

The FMA had to go to court to force Pyne Gould to reveal its lending after the listed company sought a confidentiality order.

When asked what the consequences of the scrutiny by the association might be for Perpetual, Douglas pointed to rule seven of the association's constitution.

That rule states that the association can remove a full member if the executive believes the member has failed to comply with its codes of practice, policies or regulations.

A member can also be kicked out if it believes the member has brought the association into disrepute by any other acts or omissions.

Douglas said it was the first time in the history of the association that it had required a member to explain itself.

"The judge made some fairly clear suggestions and those suggestions have been highlighted to Perpetual. We are hopeful they will come back to us."

Douglas said Perpetual had been given a deadline but he would not name the date, saying only that he hoped they would respond sooner rather than later.

"There is a degree of urgency. This is not something we are taking lightly. But we have got to go through the due process."

The related party lending concerns a $28 million loan made from the Perpetual Cash fund to Torchlight Fund No 1 LP, a limited partnership investment business run for sophisticated investors which is also a subsidiary of Pyne Gould.

Of the $28 million, about $15 million has been paid back and Pyne Gould has promised that the rest will be repaid by the end of the month.

All trustees of securities must apply to gain a full licence by the end of September.

A spokesman for the FMA said Perpetual had a temporary trustee licence under the transitional licensing period. The FMA has until September 30 to decide whether to give Perpetual a full licence.

- NZ Herald

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