Perpetual Calls For New Guarantees To Lift Its Freeze

The Age

Monday October 27, 2008

Eric Johnston, Financial Services Editor

PERPETUAL Investments aims to lift the freeze on redemptions from its $2 billion income and mortgage funds as soon as possible, but only with additional measures in place to calm nervous investors.

Chief executive David Deverall was among retail fund executives calling for the Federal Government to extend its guarantee on bank deposits to income-style investment products used by tens of thousands of retirees.

"Unfortunately the consequences of the guarantee on the bank sector has caused some issues in our sector," Mr Deverall told ABC television.

"We need to work with our clients and want to work with the Government, too, to assure our clients that those people with money outside Government-guaranteed institutions are still very, very safe."

Perpetual, which has about $29 billion under management, was among several Australian asset managers - including AXA Asia Pacific and Challenger - to suspend redemptions after the Government's decision to introduce a guarantee on Australian bank deposits triggered a surge in investors asking to withdraw their money.

Since the deposit guarantee program was announced two weeks ago, about $11 billion has flowed out of mortgage funds, mostly into high-yielding term deposits that the Federal Government guarantees, prompting dozens of funds to freeze redemptions.

The Government on Friday imposed an optional fee for big depositors in banks, building societies and credit unions for them to be able to obtain a guarantee. The fee, which will be scaled according to risk, is designed to reduce the incentive for money to flow from bodies without the guarantee into those protected by it.

Regulators are also looking at possible action to help institutions not covered by the Government's bank deposits guarantee, such as mortgage funds.

Assistant Treasurer Chris Bowen said yesterday the Government would closely monitor movements in financial markets over coming weeks.

"What we have done is respond to emerging circumstances, to the changing situation, in a way that has been welcomed across the board," Mr Bowen said.

Bank executives, including National Australia Bank's John Stewart and ANZ's Mike Smith, have argued the bank deposit insurance system would be enough to maintain confidence while slowing the redemptions from investment-style funds.

However, fund management executives warned it could take years to rebuild confidence in the mortgage industry funds, which have been caught out by the sudden drain on liquidity.

© 2008 The Age

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