Fund Managers' victims angered

David Ehlers
David Ehlers
Kevin Whitley
Kevin Whitley
John Gallaher
John Gallaher
Investors in a Dunedin fund management company have lost tens of thousands of dollars and now they want accountability. But, as business reporter Riley Kennedy reports, some  behind the company are throwing part of the blame at a government agency.

Some of the investors in funds formerly managed by Fund Managers Otago (FMO) have received their final payouts, after years, and now want justice.

Some behind the company say there are questions to be answered by the Financial Markets Authority (FMA).

In November 2020, the FMA stripped FMO of its funds after concerns about the governance of the organisation, compliance, solvency and breaches.

It was the first time the authority had executed the power and came after Trustee Executors, FMO’s supervisor, became concerned about its performance.

The funds’ management was handed over to accounting firm KPMG.

FMO had three property investment funds under its management — Capital Mortgage Income Trust (CMIT), NZ Mortgage Income Trust (NZMIT) and NZ Mortgage Income Trust No.2 Fund (No.2 Fund).

It loaned investors’ money to residential, commercial and farming borrowers.

KPMG partner Leon Bowker confirmed all known investors from CMIT and NZMIT had received their final distribution.

As some records might have been lost, he encouraged any investors that still had not received their payout to come forward.

The firm was working on winding up the No.2 Fund, but he could not give a timeframe on when that might be completed..


Peter Hutchison
Peter Hutchison
The Otago Daily Times has spoken to three investors who believed the company’s directors — John Gallaher, Kevin Whitley, David Ehlers — and former general manager Peter Hutchison, who is also a director, should be held accountable.

Wayne* (his name and that of other investors have been changed to pr

otect their identity), was an investor of the NZMIT.

He inherited the investment from his late father, who invested $50,000 when the fund was first set up, plus an additional $30,000 in the mid-2000s.

This month he received his final payment of 60% of the original investment.

He had been trying get his money out since FMO decided to wind the fund up nearly 10 years ago.

"The way the whole thing played out was not right ... it should not have been like this."

Wayne did not think it was right that FMO’s directors, including Mr Hutchison, could walk away from the "debacle" without some sort of punishment.

"My dad trusted these people with part of his retirement money and it is just not right."

While he was "extremely disappointed" with how things had played out, he was just pleased to finally "wipe my hands of it".

Bruce* was in a similar position.

He inherited his investment from his late mother, who invested about $50,000 in NZMIT in the late 1990s.

Last week, he received his investment back totalling 26 cents to every dollar invested, which he described as "outrageous".

He had also been trying to get the money back for about 10 years and Bruce believed his mother would have been "devastated".

"She would have been so upset," he said.

The fact that a lot of older people had trusted FMO with their money and FMO had "screwed them over" was a "bloody disgrace".

Jim* also had just received his payout, and described it as "pitiful".

He had inherited the investment of his parents, who he believed FMO had taken advantage of, accusing FMO of being "grossly negligent".

"The anger I feel thinking about them just makes me feel sick."

He had tried to get other investors together to take a case to court, but the cost and time it would take was not worth it.

"I hope justice, in some form, is served on them," he said.

Peter Land, a 37% shareholder of FMO’s parent company Fund Managers Holding Ltd, admitted there were mistakes, but said "there were two sides to every story".

He, alongside FMO director and Auckland-based accountant Mr Whitley, invested money in the company to keep it going in 2019 about a year before the FMA stepped in.

Mr Land described what happened as a "total overreach" on the authority’s behalf.

"There were errors, everyone admits that, but they were very technical and being worked through."

When the FMA sent the documentation to FMO advising it of its decision it came as a "complete shock".

FMO had secured an investor — "with considerable experience in the banking sector" — to recapitalise the company and that deal was going to be signed just days after the FMA stepped in.

The capital from the investor was to be used to get the company back up on its feet, employ more compliance staff and focus solely on the No. 2 Fund, which Mr Land described as being in "perfect condition".

The fund’s last annual report produced by FMO dated to March 2020 — which was publicly available on KPMG’s website — said it had produced a surplus of just over $1.03million and was worth nearly $14million.

Mr Land believed investors of that fund now faced "substantial losses" because the FMA stepped in too quickly.

The Otago Daily Times has obtained FMO’s board response to the authority and Trustee Executors, FMO’s supervisor.

In it, it said FMO’s opinion that the view KPMG’s appointment and the placement of the No. 2 Fund into wind-up was appropriate and in investors’ best interests was "fatally flawed and governance deficient".

There were "a number of" options and processes the supervisor was required to go through or consider before removing FMO as the manager that were not undertaken, it said.

"Some of those options would have been at a much lower cost to the unit holders (investors), if a cost at all, and would have been for the benefit of all parties, including unit holders."

FMO staff, directors and shareholders had been "seriously financially and reputationally damaged" as a result of the action taken, the draft letter said.

It is understood the reply was never sent because the board voted it down.

Another person close to FMO, who the ODT has agreed not to name, believed that Mr Hutchison was not entirely to blame.

They admitted he had made mistakes, but it was made worse by the FMA.

"He is not a bad guy; he has lost a lot over this and probably unfairly too."

Mr Hutchison declined an interview last week saying that he was unable to talk to media because of his employment agreement for FMO.

"Sorry, but I simply cannot engage with you," he said, in a text message.

He referred comment to chairman John Gallaher, who was the organisation’s official spokesman. He said there were "really no comments" he could make as he had not been involved in the management of FMO for more than a year.

The companies office listed Fund Managers Otago Ltd, and its holding company Fund Managers Holding Ltd, as actively trading companies.

The FMA and Trustee Executors both declined to comment referring back to their statements made in 2020.




1994 — Fund Managers Otago (FMO) set up with $7million raised for the New Zealand Mortgage Income Trust fund.
2003 — Capital Mortgage Income Trust fund was started.
2007 — NZ Mortgage Income Trust (No. 2 Fund) was started.
2012 — In February, payments to investors were suspended for 90 days from NZMIT after the funds’s cash reserves fell below 5%. In November, the fund enters the "wind up" process.
2020 — The Financial Markets Authority (FMA) removed FMO as the manager of the three funds on the advice of its supervisor, Trustees Executors. KPMG was appointed temporary  manager to complete the wind up process.
2021 — The FMA stripped FMO of its managed investment scheme licence stopping it from being able to operate in the retail investment sector.
2022 — Investors of the CMIT and NZMIT receive their final payouts.