Planners attack Challenger over fund failure

Financial planners are threatening a boycott of Challenger products, after the collapse of one of the Packer-backed manager’s funds left clients with huge losses.

And Challenger could be staring down the barrel of legal action as well, with planners considering a class action against it, either on their own, or with the assistance of legal funding company IMF.

Tempers flared last week when the fund manager announced that investors in its Challenger Howard Property Trust — Penrith Homemaker Centre would only get a third of their original investment, after the fund’s sole asset had to be sold at a significant loss.

Despite the property only being sold at 16 per cent below the original purchase price, investors lost 67 per cent of their original investment, which was highly geared. The rest of their capital was largely eaten up by management fees and expenses. Even the costs incurred in winding up the trust were passed onto clients by Challenger.

But Challenger has stood firm, claiming it had done all it could to save the trust, and had only decided to sell after the independent auditor it appointed to examine the situation, PricewaterhouseCoopers, recommended that the sale was in the clients’ best interests.

Challenger said there were risks associated with any investment, and that management fees had not been taken since October 2004 — almost two years after the fund was established.

The proposal to ban Challenger products, and pursue legal action, is being spearheaded by members of the 1,000 planner strong Association of Independently Owned Financial Planners (AIOFP).

A dealer group not related to AIOFP, Avenue Capital Management, which only had a small number of clients involved, is also currently in talks with Challenger.

AIOFP chief executive Peter Johnston said the ban proposal would be put to members as a vote.

“I have a feeling it will pass, and these members have been contacting others outside our association and encouraging the boycott until Challenger fixes things up.”

IMF confirmed to Money Management that it was aware of the case, but said it was too early to comment on whether it would initiate legal action.

Johnston said he sympathised with Challenger management.

“They kind of inherited a problem from the previous management of the shopping centre, which had a number of defaults with their tenants, with some going bankrupt. And from what I can see, Challenger has done everything to fix the problem over the last couple of years.

“But nevertheless, some people have lost a lot of their capital in an economy that has been buoyant, even in commercial property. People are not going to lie down on this,” Johnston said.