Two AXA funds to be wound up

Two AXA mortgage funds frozen last year will be closed and it is hoped their 6000 investors, mostly BNZ wealth management clients, will be repaid their $212 million in full over the next four to five years, AXA and BNZ say.

The Mortgage Distribution and Mortgage Investment funds were among a number of mortgage funds frozen last year as a wide-ranging liquidity squeeze was exacerbated by the introduction of the Government's retail deposit guarantee.

The majority of the 2000 investors in the $212 million Mortgage Distribution Fund (MDF) and the 4000 investors in the Mortgage Investment Fund, 98 per cent of whose funds were invested in the MDF, were either BNZ wealth management clients or BNZ clients who invested in the funds after BNZ sold its wealth management division to AXA in 2007.

Yesterday, AXA chief executive Ralph Stewart said that after an evaluation of alternatives a decision had been made to wind the funds up.

Since the funds were frozen in October, $31 million in cash reserves had been built up.

The sale of some of the book was likely to be finalised soon and it was hoped a return of 25 per cent of capital would be made over the next few months, starting with a 10 per cent repayment in April.

While there was no guarantee of full repayment, Stewart said he was "confident" investors would receive 100 per cent over the next four or five years. It was hoped interest would be paid once all loans had been repaid or refinanced and provisions on the book were made.

"How much per annum looking backwards that will be I'm not sure. Given cash rates are relatively low and the earnings rate on the mortgages is higher than the cash rate, if we can recover as quickly as we can and capture as much interest as we can, it could still be a positive experience on a net present value basis."

Letters detailing the wind-up plan were sent to investors yesterday.

BNZ general manager of strategy and marketing Blair Vernon said a number of options had been examined when considering the best way forward for the funds and their investors including the BNZ, which originated the loans via third-party mortgage brokers several years ago, to take over the loan book itself.

But it was felt the "complexity" of "picking up a small number of loans and then putting them back into our systems" was too much for the bank.