29 Oct 2008

Govt scheme 'likely' to cover some mortgage funds

3:20 pm on 29 October 2008

Finance Minister Michael Cullen says some managed mortgage funds are likely to be covered under the Government's deposit guarantee scheme.

AXA New Zealand has frozen three mortgage funds worth $225 million for 30 days in a bid to prevent a run on its funds.

The company fears people will withdraw their funds to switch to investments covered by the Government's deposit guarantee scheme. At present, most managed funds are not included in the scheme.

AXA says the move was necessary, as it is inevitable that people will want to switch to investments covered by the guarantee scheme.

A group representing six mortgage funds has made a submission to the Reserve Bank seeking to be included in the Government's scheme.

Dr Cullen says some mortage funds will be covered depending on how they are invested and it will be up to the Reserve Bank to determine whether they are covered under the scheme.

He says the Government will look at "sensible measures" to avoid a collapse of the managed mortgage funds industry.

Managed mortgage fund deposits are normally used to invest in residential or commercial mortgages.

AXA New Zealand's chief executive Ralph Stewart says a pull-out by investors would put companies such as AXA New Zealand in a difficult position.

Mr Stewart says there has been an increase in the number of redemptions over the past three months by investors, which is why AXA has put the freeze on funds.

He says he has several meetings planned with the Reserve Bank and the fund trustee over the next month.