Australia's Macquarie Bank says two investment funds face losses

Australia's Macquarie Bank says two investment funds face losses

	Published : Wed, 01 Aug 2007 00:29 By : Agencies Print this Story

SYDNEY (Thomson Financial) - Retail investors in two high-yield investment funds managed by Australia's leading investment bank, Macquarie Bank Ltd, face losses of up to 25 percent or about 300 million Australian dollars, the bank said in a statement released late Tuesday .

Macquarie said the two Macquarie Fortress funds were marketed to smaller investors.

The director of Macquarie Fortress Investments, Peter Lucas, said that the average price of assets in the portfolios had fallen by four percent in July but because of loans made against the funds, which

have about 1.3 billion dollars invested, they could lose a quarter of their value.

He also warned that the funds face possible margin calls from their lenders if they could not sell enough assets to reduce leverage.

Macquarie becomes the third similar Australian fund to get into trouble after Basis Capital and

Absolute Capital froze investors' money.

Lucas said the Fortress funds are invested in senior secured US corporate loans.

He said while Fortress notes have no direct exposure to US subprime mortgages, the portfolio continues to be adversely affected by price volatility in US credit markets.

The listed Macquarie Fortress Notes fund has about 140 million dollars of investors' money and the unlisted Macquarie Fortress Fund has 80 million dollars.

Because the funds borrowed approximately six to seven times that amount to invest in loans, the potential losses are greatly magnified.

Lucas said there have been no defaults in the portfolio and there is no reason to believe that the loans in the portfolio will not continue to pay their periodic interest commitments and repay the principal outstanding at par.

'However, as the market value of the portfolio has decreased further it has become necessary for the investment manager to sell selected loans and apply the proceeds to reduce the leverage facility so that the loan to value ratio meets the applicable covenants,' Lucas said.

In the last quarter Macquarie Fortress Notes paid an annualised yield of 10.8 percent. Lucas said a decision hadn't been made regarding an interest distribution for the current quarter.

(1 US dollar = 1.18 Australian dollars)

bruce.hextall@thomson.com

bhx/bhx/ms

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.