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Australia’s Absolute Capital calls in administrators

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The board of Australian-based credit fund manager Absolute Capital Group has appointed voluntary administrators, four months after the firm suspended two yield strategies funds with assets

The board of Australian-based credit fund manager Absolute Capital Group has appointed voluntary administrators, four months after the firm suspended two yield strategies funds with assets of some AUD200m in what was presented at the time as a temporary response to the lack of liquidity in global structured credit markets.

Absolute Capital Group – which is unrelated to the also-troubled Absolute Capital Management business listed on the London Stock Exchange – says Tony McGrath and Joseph Hayes of McGrathNicol have been appointed administrators only to the Absolute Capital corporate entities and not to its fund products.

The company, which offers a range of structured credit products to institutional and retail investors, attributes the move to the prolonged period of illiquidity in global and local credit markets.

‘The reduction in fees paid to the corporate entity from a number of its investment products impacted the long-term viability of the business,’ Absolute Capital said in a statement. ‘As a result the board took the decision to enter voluntary administration and appointed Tony McGrath and Joseph Hayes of McGrathNicol as joint and several administrators.’

McGrathNicol says it aims to move swiftly to review options and focus on securing the stability of the company. ‘Our first priority is to review the options available for the Absolute Capital Group and the implications for the underlying products, and determine the best possible outcome for investors and creditors,’ McGrath says.

A meeting of creditors is scheduled for December 3 at which they will be provided with an update on the financial position of the company.

Managing director Deon Joubert announced on July 25 that Absolute Capital was temporarily suspending its Yield Strategies Funds, classes A and C of the Absolute Capital Yield Strategies Fund and the Absolute Capital Yield Strategies Fund NZD, due to lack of credit market liquidity.

In a statement, Joubert said that the funds had exposure to structured credit assets including collateralised debt obligations, credit opportunity funds and Australian asset-backed securities. He said that while the funds maintained a diversified portfolio of investments and did not invest in the higher-risk equity tranches of the CDO market, ‘the general lack of liquidity in the market, and in particular the CDO debt market backed by senior secured loans where we invest, led to the decision to temporarily close the funds to … protect investors.’

Joubert insisted that Absolute Capital’s credit funds and the Australian asset-backed security components of the funds were performing well, and that the funds’ exposure to US sub-prime assets was less than 5 per cent, while the manager used little leverage.

‘Absolute Capital believe a temporary closure of the funds is the best defensive measure to protect the longer-term interests of our investors and to ensure equity amongst all investors as we manage any withdrawal requests, given the current illiquid nature of the funds’ investments,’ Joubert said.

At the time, Absolute Capital indicated that it hoped to be able to resume redemptions by late October, an aspiration that was not fulfilled, although the funds did pay a distribution to investors for the quarter to September 30.

‘Absolute Capital encourages investors to adopt a 12 to 18 month view because, notwithstanding the present volatility, we believe the market will provide some good opportunities,’ Joubert said in July. ‘We are expecting that markets will settle over the next few months, in which case investors in the funds may be able to benefit from these opportunities and improved market conditions.’

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