MFS behind NZ funds that went belly-upAnthony Klan | January 30,...

MFS behind NZ funds that went belly-up

Anthony Klan | January 30, 2008

BELEAGUERED financier MFS is behind a $1 billion New Zealand financial planning firm that poured tens of millions of dollars of investors' money into three high-risk investment companies that have all collapsed in the past six months.

MFS could face millions of dollars in compensation payments to thousands of investors after almost half of the debenture investment companies it recommended to "mum and dad" investors - including the $450 million Bridgecorp empire - were swept into receivership.

The revelations come as MFS - which is chaired by former Liberal leader Andrew Peacock - yesterday froze its $770 million Premium Income Fund for six months amid a run on redemptions.

As part of an expansion push, apparently aimed at securing outlets to sell MFS financial investment products, MFS New Zealand bought one of that country's biggest financial planning groups, Vestar, for $46 million in December 2006.

In the following six months MFS merged Vestar with four smaller New Zealand financial planning groups - including Northplan and Colin Strang Financial Planning - which were merged with Vestar, delivering the group more than 5000 clients with about $1 billion in funds "under advice".

Of the seven "approved" fixed interest debenture investments Vestar spruiked to mum and dad investors for a commission fee, Bridgecorp, Property Finance Group and Capital + Merchant Finance, have all collapsed since July, owing about 30,000 investors more than $650 million. In the fallout of those collapses MFS New Zealand told Vestar clients it had a "commitment" to ensure they did not incur a "capital loss" and that Vestar was working on a rescue package.

MFS New Zealand chief executive Jason Maywald did not return calls yesterday, but an MFS New Zealand spokesman confirmed the rescue package was still under consideration by the group despite MFS Ltd's indefinite suspension from trade.

The MFS spokesman would not disclose how much of the $1 billion of funds Vestar had invested for clients had been directed into Bridgecorp, Property Finance Group and Capital + Merchant Finance, but it is likely to be in the hundreds of millions.

MFS had been attempting to sell the financial services arm that holds Vestar, with fellow Gold Coast company City Pacific launching a $1.33 billion bid for MFS Financial Services earlier this month. City Pacific withdrew that bid after the value of MFS Ltd - which includes both MFS Financial Services and travel group Stella - crashed to less than $480 million after MFS made a desperate attempt to raise $550 million.

MFS's exposure to claims by Vestar investors is likely to further reduce the price.