More than two years after limiting investor withdrawals on the Challenger High Yield Fund, the fund manager now proposes to return 20 per cent of capital to remaining unit holders and to convert the balance into an investment in an alternative income fund that will mature in March 2014.
The limit on withdrawals came into effect in October 2008 at the heigh of the financial crisis, and at a time when Challenger and other fund managers were obliged to freeze investor withdrawals on numerous funds.
Challenger yesterday published documents relating to the plan, including an assessment by Deloitte Corporate Finance.
Investors' funds at 31 December 2010 were $556 million, on Challenger's assessment, while Deloitte valued the fund's holdings in a range from $535 million to $548 million.
The bulk of the fund's investments are in ASX listed hybrids including unspecified holdings of equity investments, as well as corporate bonds. Other investments include mortgage-backed securities, private debt, and convertible notes.
Challenger classifies $9.4 million in debt securities, or two per cent of the fund's investments, as non-performing.
Deloitte valued the proposed investment swap, into cash and also into the Challenger Guaranteed Investment Fund, as being of marginally greater than the present value of the high yield fund.
The proposal also provides a shorter timeline for investors to recover their funds, with a maximum life for the new investment of three years compared with more than 10 years for the high yield fund.