Colonial First State to wind up mortgage fund

Commonwealth Bank’s funds management business Colonial First State has shocked the struggling mortgage fund sector by announcing it will wind up the $850 million Colonial First State Mortgage Income Fund because it is in the best interests of investors.

The surprise move is another blow for the beleaguered sector, which has been plagued by problems since the collapse of Lehman Bros sparked the global financial crisis in October 2008.

It is estimated that $15 billion of Australia’s $20 billion in mortgage funds remains frozen, meaning some investors cannot receive redemptions from the funds.

The CFSMIF was one of these funds. Colonial First State chief executive Brian Bissaker said the level of redemption requests has consistently exceeded the cash available for payouts, leaving the company no alternative but to terminate the fund.

It will take around four years to wind up the fund, which will officially close on March 1.

Colonial says investors will receive 10% of the account balances in the first payment in March, and then further payments every three months.

The closure of such a high profiled mortgage fund could have implications for the rest of the sector.

While Investment and Financial Services Association chief executive John Brogden has said the termination was specific to one fund, some analysts are concerned nervous mortgage fund investors may lodge more redemption requests in the coming months.

Colonial says the decision to close the fund, which accounts for less than 1% of the company’s total funds under management, will not affect any other funds managed by Colonial.