Financial markets regulator cancels Fund Managers Otago’s licence

Seven months after being removed as manager of its three investment schemes, a South Island fund manager has been stripped of its licence to operate.

In November, the Financial Markets Authority (FMA) appointed a temporary manager to manage three investment funds operated by Fund Managers Otago, one of which had 600 investors.

Now, the FMA has cancelled Fund Managers Otago’s managed investment scheme manager licence, the first time the regulator has proactively cancelled a fund manager’s licence.

The FMA was called in last year by Trustees Executors, which was the supervisor for the Capital Mortgage Income Trust, the NZ Mortgage Income Trust, and the NZ Mortgage Income Trust (No 2) Fund.

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Trustees Executors decided that removing Fund Managers Otago as manager of the schemes was in the best interest of investors.

The FMA appointed KPMG Restructuring Services as a temporary manager to wind up the three investment schemes.

James Greig, FMA Director of Supervision, said Fund Managers Otago was no longer capable of being a fund manager.

“Cancelling a licence is one of the strongest regulatory actions we can take, and it’s not a decision we take lightly,” he said.

“It effectively stops a business from operating in the retail investment sector.”

The FMA found Fund Managers Otago had repeated breached its licence obligations. These included incorrectly calculating and disclosing returns in fund updates, entering into prohibited related party transactions, and failing to manage certain funds within the limits of its Statement of Investment Policy and Objectives for persistent periods of time.

It had also failed to keep adequate records, the FMA said.

Fund details for the Capital Mortgage Trust posted on the public Disclose Register show that by the end of March it held assets of just $475,000.

The Capital Mortgage Trust was set up in 2003 to invest in a portfolio of loans secured by registered first mortgages over land and buildings in New Zealand and bank deposits.

Financial statements posted on the Companies Office register show Fund Managers Otago Limited made losses in the 12-month periods to the end of March 2019 and 2020.

In its notes on the 2020 financial statements, auditor PWC said there was a material uncertainty related to the company’s ability to continue as a going concern.

The financial statements, posted with the Companies Office in September, said Fund Managers Otago’s directors acknowledged its financial position was not satisfactory, and had put in place plans to improve the situation.

These included a targeted marketing campaign to grow funds under management, and attract new investors.