While MFS changes its name to Octavier and continues its battle for survival, another piece of MFS is in even more strife.
The MFS Premium Income Fund — technically a separate entity but managed by MFS — has already suspended distributions and redemptions and is currently in breach of a $184 million loan facility with HBOS. Further, a report prepared by investment firm Lonsec noted that investors should expect to recover 95 cents in the dollar. However, that’s assuming MFS stands by a $50 million support facility. Given MFS’s current situation, PIF unitholders won’t be holding their collective breath.
Auditor PwC was even less optimistic about PIF’s prospects, noting that there was uncertainty as to whether PIF will be able to continue operating as a going concern.
As with everything MFS, there seem to be double doses of clumsiness and conflict permeating the MFS Premium Income debacle.
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The AFR’s Paddy Manning revealed on Saturday that:
One financial planning dealer group with links to MFS/Octavier is Avenue Capital Management. Avenue director Michael Hiscock recently resigned from MFS/Octavier board, and MFS/Octavier deputy chairman, Paul Manka, is also a director of Avenue.
Strangely, Manning didn’t go in for the kill, instead noting that:
Avenue clients have about $51 million directly or indirectly invested in the MFS Premium Income fund – a small proportion of total $1.4 billion under advice.
Despite board connections, Avenue Director Simon Clifford told the Weekend AFR on Friday that “MFS has nothing to do with us … there is no link between MFS and ACM.”
There are two points that should be corrected. First, despite Avenue’s claims, there do appear to be several key links between Avenue and MFS Premium Income Fund. And it appears that those links may have led to clients of Avenue investing a greater proportion of their savings in MFS PIF than if they’d been with a non-conflicted financial planner.
Avenue director Michael Hiscock was, until last week, a director of MFS. Hiscock was also a director of MFS Living and Leisure and was chairman of MFS Diversified. MFS PIF invested unitholders’ funds in MFS Living and Leisure and MFS Diversified (MFS Living and Leisure owes MFS PIF $67 million, due in May, although Lonsec claims repayment of the sum is in “significant doubt”). Even though Hiscock wasn’t a director of PIF itself, he was a director of the responsible entity of PIF (MFS itself) and chairman of a fund which owes PIF $67 million.
Similarly, MFS chairman-designate, Paul Manka, showed that he can be as conflicted as his fellow board member, simultaneously serving as an Avenue financial planner while also being a director of MFS Diversified, MFS Living and Leisure and MFS itself.
Further, the claim that Avenue’s investment of $51 million (out of what is actually $1.7 billion funds-under-management) in MFS PIF is a “small proportion” of funds under advice seems somewhat hopeful. Avenue director, Simon Clifford, told Crikey that any advice provided to clients to invest in MFS PIF came after the fund was recommended by research house Lonsec and that “everything was done by the book”.
However, the fact remains that of the $754 million raised by MFS Premium Income Fund, $51 million came from clients of Avenue Capital Management. Avenue itself confirmed that across both PIF Wholesale and Retail funds it was the third largest investor in the funds despite it being far smaller than the likes of AXA’s Hillross (with FUM of more than $5 billion) or Count Financial (FUM of $12 billion).
Clifford also noted that PIF wasn’t the major avenue for its clients, with Avenue investing greater amounts in Macquarie Cash Management Trust (more than $120 million) and Perpetual Premium Income Fund. However, Avenue only started funneling clients’ funds into PIF in early 2005 after Lonsec started recommending the fund.
By contrast, Avenue would presumably have been recommending clients invest in Macquarie and Perpetual since 2000. While not confirmed by Avenue, based on the numbers, it would appear that in the last three years, PIF may have been the largest recipient of Avenue clients’ funds.
It should be remembered that while MFS PIF has been frozen, there is still a chance that investors will receive some or most of their funds back. No doubt Avenue and their advisors at Lonsec will be hoping they do.