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ING blames global credit crunch for suspension of New Zealand funds

Date: Friday, March 14, 2008
Author: Hedgeweek.com

ING New Zealand has given notice to investors in the ING Diversified Yield Fund and the ING Regular Income Fund that all further withdrawals have been suspended because of the current economic conditions affecting financial markets.

ING says it has taken the decision to protect the interests of investors, who could be disadvantaged by difficulties in obtaining reliable market prices, or the forced sale of assets in order to meet withdrawal requests.

The two funds invest largely in collateralised debt obligations and collateralised loan obligations, which have come under increasing pressure in the markets since the middle of last year, driven initially by a deterioration in the US sub-prime mortgage market and subsequently by falling US housing values, higher borrowing costs and the prospect of a recession in the US.

'This combination of factors has created a general nervousness in investment markets globally, which has reduced the market value of shares and property, as well as credit securities,' says ING New Zealand chief executive Marc Lieberman.

'This nervousness is reflected in declining unit prices for these types of funds, resulting in a number of investors choosing to withdraw. The decision to suspend withdrawals from the funds is a prudent action that seeks to protect the interests of investors.

'Those looking to access their money in the near term will be disappointed, but to continue to allow withdrawals to satisfy a minority of investors could significantly reduce the overall quality and value of the portfolio, to the detriment of investors as a whole. Furthermore, continued market volatility and illiquidity makes it increasingly difficult to reliably determine the unit price to apply for buying and selling units.'

Lieberman argues that to meet a higher number of withdrawal requests, the funds would need to consider selling better-quality assets, which would be difficult in the current market except at significantly less than their true value. This could prejudice investors as a whole by reducing the quality of the overall portfolio.

ING says the funds' portfolios are well diversified by location and industry, with more than 180 securities representing nearly 6,000 individual investments. More than 60 per cent of the portfolios consists of senior secured loans, while less than 10 per cent of the assets are in the sub-prime sector, and the majority of securities are individually rated by S&P, Moody's or Fitch.

'The decision reflects the impact of extreme conditions on our ability to price assets reliably and maintain liquidity as well as investor equality - it is not an indication of credit quality,' Lieberman says.

'To date, only about 6 per cent of our CDO and CLO portfolios have experienced any credit impairment, and the assets continue to deliver steady income flows. Maintaining overall credit quality is paramount because in the longer term, when investment markets are expected to stabilise, good quality assets should see the more positive market conditions reflected in their value.'

ING has also announced that management fees will continue to accrue but will not be collected during the period of suspension. 'We will only be paid when our investors are able to be paid their withdrawal requests,' Lieberman says.

While the suspension is in effect, existing and prospective investors will not be able to purchase additional units in either fund through new applications, reinvestments or additional contributions, but cash distributions of income will continue to be made from the funds.

The suspension of withdrawals from the funds, which were previously paid out once a month, is effective from March 13 and will remain in place as long as ING considers it necessary to protect investors' interests. However, the manager says it will review the situation on an ongoing basis.