East Coast Mortgage fund trusts La Trobe

Members of a small mortgage fund, East Coast Mortgage Trust, have voted to transfer the assets of the fund to La Trobe Financial. La Trobe will manage the orderly winding up of the fund.

East Coast Mortgage Trust, which is based in Lismore, has 3500 members. Like many other mortgage funds, East Coast was hit by a liquidity crisis during the financial crisis and has been in wind-up mode for several years.

At one stage the fund had assets of A$200 million, but, as loans have been paid out and proceeds distributed, it is now down to about $80 million.

La Trobe will take over 85 per cent of the assets, leaving East Cast to dispose of a caravan park that it owns.

The rationale for moving to La Trobe is that the bigger group has the resources to handle the winding up more efficiently and with less cost than East Coast. The move should also ensure there is no fire sale of assets.

For La Trobe, the benefit of acquiring a fund in run off is that it has the opportunity to offer East Coast's members reinvestment options.

La Trobe Financial's chief wealth management officer, Randal Williams, said the East Coast transfer is the fifth deal of this kind that La Trobe has done since the financial crisis.

Williams said:  "Our experience with the previous deals is that we end up keeping about one-third of the members."

La Trobe has a $600 million mortgage fund. It offers investors four investment options: a 48-hour call option, which is currently paying 4.45 per cent; a 12-month term option, which is currently paying a yield of 6.3 per cent; a direct first-mortgage option, where the investor picks the mortgages in which they invest (the current yield is eight per cent); and a direct second-mortgage option, which is currently paying a yield of 15 per cent.

Williams said La Trobe has always structured its funds to match the liquidity of assets and liabilities. It did not have to deal with a liquidity crisis during the financial crisis and has continued to grow.