City Pacific loses mortgage fund

BALMAIN Trilogy is undertaking an asset review of City Pacific's $630 million First Mortgage Fund after it was appointed responsible entity.

It's good news for disgruntled unitholders, but bad news for the once financial powerhouse City Pacific, which has called in the receivers.

It's another blow to the company's financial status as it staggers with debts to the Commonwealth Bank of around $100 million. More than 90 per cent of its loans - many made out to developments managed by City Pacific are now in default.

The majority of the 11,000 unitholders in the fund voted against City Pacific as responsible entity for the fund. Balmain Trilogy is a joint venture between asset manager Trilogy Capital and loan originator Balmain Commercial.

Balmain is crafting a strategy to satisfy the Commonwealth Bank. Balmain Commercial CEO Andrew Griffin, says an asset review of the company is underway as a team of 12 works to execute the best strategy for unitholders and the CBA.

"We have commenced discussions with the Commonwealth Bank and are hopeful that within the next two to three months, there will be a set regime that will benefit investors. Our primary concern is with the CBA, but we want to see returns for investors to start trickling back in," says Griffin.

Griffin lambasted City Pacific for the way in which the fund was handled, citing conflicts of interest.

"The bottom line is that a third of City Pacific's loan book had been lent to related parties and that has created an awful mess for unitholders," he says.

"We will bring independence to the management of the fund. We don't have an axe to grind, we're just trying to manage the asset properly. We have an infinitely better skill set and general ability to mediate.

"What we find staggering is that we have allocated 12 to 13 staff to this task and City pacific had two or three. They told unitholders they couldn't manage the fund for 1.5 per cent."

The First Mortgage Fund is City Pacific's key revenue source. In the 2007-08 financial year it generated $30 million in management fees. This year it is expected to generate half that.

Griffin says Balmain's fees will equate to under $10 million to manage the fund. The company has $9 billion of funds under management.

City Pacific was founded in 1997 by former bankrupt Phil Sullivan, whose Gold Coast development company collapsed in the 1980s.

City Pacific delivered a $74.3m half-year loss in 2008.