No clawback for HMF overpayments

Investors in the disputed Hubbard Management Fund (HMF), once valued at more than $80 million, will not have any earlier payments ''clawed back'' by court order, according to statutory managers Grant Thornton.

Grant Thornton, coming under increasing pressure from disgruntled investors in HMF and separate claims on Aorangi Securities Ltd, yesterday announced a High Court-backed HMF payment scheme of an initial ''capital pool'' for payments, followed by a ''surplus pool'' payout.

''Payments will be made from the realisation of assets and will be made proportionately over time. We will need to retain sufficient funds to honour HMF's contractual commitments to private equity funds and pay costs,'' Grant Thornton said yesterday.

HMF, once valued by millionaire financier Allan Hubbard at $83 million, has had its fair value of identified assets set at about $40 million by Grant Thornton, which rejects investors' claims it is to blame for the decline in value.

HMF's payments to shareholders are likely to take years to complete, with the potential for court appeals, claims by the Hubbard family, and tension between the Investor Liaison Group for Hubbard Management Funds and Grant Thornton.

Grant Thornton noted yesterday that should any appeal be lodged by January 23, all distributions would be delayed until the appeal was resolved, which could take all of 2013.

In early April this year, HMF investors received their first payment since the fund was frozen in 2010 just weeks before South Canterbury Finance began unravelling. The latter triggered a government bail-out of $1.75 billion.

The funds in HMF and Aorangi Securities were not covered by the government guarantee.

The investor payments since April totalled $12 million and equated to 13.4c in the dollar for the HMF investors. The HMF portfolio was once valued in investor statements at $89 million, before it was placed in statutory management.

Grant Thornton said the earlier interim distribution this year, previously approved by the High Court, meant some investors had received more than the original capital they had invested in HMF.

''The courts' clawback of these overpayments which resulted from the June 2012 order has now been removed. The statutory managers will no longer be required to seek repayments from investors previously impacted,'' Grant Thornton said.

The managers said it could take ''at least two years'' to repay the first capital pool, followed by the surplus pool, as many investments were illiquid or in long-term private equity funds.

''We will not sell assets on a fire sale basis,'' Grant Thornton said.

Early last month, Grant Thornton, in response to mounting investor criticism, said the fair value of the identified HMF assets was $60 million, not the $83 million in Mr Hubbard's statements to investors, less further costs (see factbox at left), leaving about $40 million in assets.

Beginning of the end

• June 2010: Government puts South Canterbury founder Allan Hubbard, his wife, Jean, Hubbard Management Funds, Aorangi Securities and seven trusts in statutory management.
• August 2010: SCF into receivership; triggers government settlement of $1.75 billion owed to 35,000 investors and lenders under retail deposit guarantee scheme. Hubbard Management Funds (HMF) and Aorangi Securities not under guarantee scheme.

The numbers

• HMF investor statements overstated by Allan Hubbard: $23 million ($60 million stated as $83 million)
• Further cash shortage identified: $6.5 million
• Financiers' claims, and the Hubbard family: $7 million
• Market movements and costs: $4 million

Total reduction in HMF book value $40.5 million

SOURCE: Statutory managers Grant Thornton

simon.hartley@odt.co.nz