Perpetual is planning to launch a new mortgage fund series to retail investors after the company decided to close its existing $1 billion mortgage fund range.
"Perpetual acknowledges that in today's environment the existing structure of mortgage funds is not sustainable due to their limited ability to conduct new lending and to take advantage of the strong returns and Perpetual has decided to return capital to investors in existing funds," the company said.
The decision affects Perpetual's Wholesale Monthly Income Fund, Perpetual's Monthly Income Fund, Perpetual WealthFocus Super and Pension Fund's Mortgage Option, Perpetual WealthFocus Investments Mortgage Fund and Private Investor Mortgage Fund, which was only available to Perpetual Private Wealth clients.
These funds will no longer accept applications as of 17 September 2011 and there will be no withdrawal payments for September 2011.
The funds will return available liquidity in the form of a capital repayment to all investors on a six-monthly basis with the first payment in March 2012, when the company expects to return about 25 per cent of the capital.
The funds will continue to make monthly income payments.
The new series follows the successful launch of an institutional version of the fund, called the Secured Private Debt (SPD) fund late last year.
The new series will focus on income and will have limited liquidity, Perpetual said.
Like traditional mortgage funds, Perpetual's SPD funds take secured exposure over Australian commercial property.
But unlike traditional funds the SPD funds have more defined terms.
"The series has a term structure of three to four years," Perpetual income and multi-sector group executive Richard Brandweiner said.
The funds can potentially generate higher levels of monthly income for investors by having the ability to invest in higher income producing mortgage assets instead of holding a minimum of 20 per cent cash to fund daily withdrawals.
Since the GFC the demand for commercial property loans has exceeded supply leading to the potential for strong yields in mortgages.
Perpetual hopes the new series will attract retail investors from its existing $1 billion mortgage fund range.
Although Brandweiner could not say how much of the funds under management the company expected to retain he was positive about the prospects.
"The average holding period for our investors is nine years, while the average loan term is three years," he said. "The majority of investors are pensioners who rely on the income stream," he said.
Mortgage funds experienced problems during the global financial crisis as many investors sought to redeem their money at the same time.
Although Perpetual also had to restrict redemptions, Brandweiner said that the majority of its investors did not apply for redemptions.
The institutional version of the fund, which opened at the end of last year, had wide support from consultants and is currently 80 per cent funded, Brandweiner said.
When it reaches $180 million, the company will close the product and is likely to open a second tranche, Brandweiner said.
The retail version of the mortgage fund will be available before the end of this calendar year.
