Challenger fund collapse hurts investors

People who invested in a Packer-backed Challenger Financial Services’ property fund that invested in a Sydney shopping centre will only get a third of their original investment back, after the property had to be sold at a significant loss.

The 33 cents in the dollar payment to 1,500 investors in the Challenger Howard Property Trust - Penrith Homemaker Centre has drawn an angry response from financial planners, who feel Challenger has offered investors too little.

Many are particularly concerned that Challenger continued to take management fees on the fund.

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

"All investments have a level of risk, one of those being unforeseen circumstances, or changing market and economic conditions, resulting in a sale price lower than the purchase price. Other risks include variability in net property income, property vacancy and the financial strength of tenants," a spokesperson said this morning.

The fund’s sole investment was in the Penrith Mega Homemaker Centre in Sydney, which Challenger paid $65.5 million for in December 2002.

But late last week Challenger said the centre would be sold for $55 million to Ticor Developments - which is $10.5 million or 16 per cent below the original purchase price.

“The second largest component of the loss relates to transaction costs, fees, and other costs relating to establishing and winding up the trust,” Challenger told planners and investors in its letter.

According to Challenger, the centre was sold as a result of poor trading performance, high vacancy rates and tenant volatility, and “ a general negativity towards the bulky goods market”.

One financial planner who contacted Money Management said: “Challenger does not appear to wish to take any blame for this fiasco and is happy leaving the investor to carry the can on this.”

Association of Independently Owned Financial Planners chief executive Peter Johnston called for Challenger to at least reimburse investors for the management fees they charged.

“We think they should stop blaming previous management decisions or PricewaterhouseCoopers (PWC) for recommending the property’s disposal and do the honourable thing and make up the shortfall for the consumers,” he said.

The fund received a recommended rating from research house Lonsec back in 2003.

The Challenger spokesperson said the company had been doing all it could to turn the performance of the centre around for some time, but eventually agreed with a PWC report that recommended the sale of the centre would present the best possible option for investors.