measures aimed at solving one problem in financial markets can
often lead to other severe market dislocations not originally
anticipated. This is the unfortunate situation in Australia,
created by the government’s announcement on 12 October that it
would guarantee all deposits in the country’s banks and non-bank
authorised deposit-taking institutions for the next three
years.
The move sparked an exodus of money from
mutual funds invested primarily in mortgages and in some instances
property development loans and mortgage backed securities into bank
deposits.
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By late-October the pace of withdrawals had
accelerated markedly, fuelled in part by negative comments from
market analysts that added to negative investor perceptions.
Acting to stem the haemorrhaging, three major
players in the sector announced on 23 October that they were either
suspending or drastically curtailing redemptions from funds under
their management.
The most drastic measure was taken by AXA Asia
Pacific, a 52-percent-owned unit of French insurer AXA, which
announced that it had suspended all redemptions from its Monthly
Income Fund and Monthly Income Wholesale Fund for six months. The
funds had total assets of A$2.1 billion ($1.4 billion) as at 30
September.
Less drastic were moves by composite insurer
Australian Unity and financial services company Perpetual
Investment Management. Both companies announced that redemptions
would be permissible on a quarterly basis with total redemptions
from their funds based on the amount of cash available as
securities mature in the portfolios.
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By GlobalDataAustralian Unity’s decision involves four of
its funds with total assets of about A$2.4 billion, while the
Perpetual decision affects two of its funds with total assets of
about A$2 billion.
Indicative of the flight to safety, UK insurer
Aviva’s Australian unit reports that investors in superannuation
funds shifted A$300 million into term deposits through its platform
in the first nine months of 2008.
The deposits also carry the government
guarantee.
