Editorial: Grim news for investors

OPINION: What little that was left of Allan Hubbard's professional reputation after its shredding by Justice Minister Simon Power and the Serious Fraud Office was destroyed yesterday by a report from the statutory managers appointed to oversee his financial affairs.

If the report was designed to undermine any remaining faith Hubbard investors had in their man, it succeeded.

The second report into the financial affairs of Mr Hubbard is a damning indictment of the Timaru philanthropist's business practices. The key points are that Mr Hubbard overstated the investments in Hubbard Management Funds (HMF) by 25 per cent, his accounting and governance practices were poor and he no longer has the resources to make good on his investors' interests as he has promised. Some funds detailed by Mr Hubbard did not exist, the report says.

The report also destroyed his reputation as an investor with a Midas touch. They point out that only 17 of 51 farm loans are likely to meet their obligations, and that many loans are on poor assets.

But for the investors in Aorangi Securities and HMF, the report was not entirely depressing reading. Losses are likely and their funds remain frozen, but they can expect a repayment of capital in October.

True to their form so far, the statutory managers have provided a report that is heavy in its criticism of Mr Hubbard, but short on detail. Most disappointingly, investors, who have been left high and dry by the statutory management, were not given any clue about the size of the payment they can expect in October.

In other high profile receiverships investors have been given indications of likely returns early on, but the Hubbard statutory managers are keeping those details to themselves. The managers have appointed a public relations specialist, but are refusing to answer any media inquiries at all. Since they will not answer questions it is not clear why they need to pay a PR firm to confirm they have nothing to say. No doubt investors will pick up the bill for this Kafkaesque nonsense.

This lack of accountability is unusual in the case of high profile company failures, and can only add to investors' distress.

The report is deficient from an investors' point of view in a number of ways.

First off, its lack of a forecast of possible returns after nine weeks of investigations make it of little or no use for those trying to plan for the future. The lack of accountability to investors by refusing questions is puzzling. While Mr Hubbard's affairs are laid open, there can be no scrutiny of the Government-appointed managers' findings.

One of the key themes of the report is that Mr Hubbard invested heavily in dairy farming, which the managers seem to regard as unwise. Since dairy farming is our most successful export industry, has created huge wealth for South Canterbury, is credited with almost single handedly helping New Zealand out of recession, it is unclear why they are so singularly pessimistic.

The report highlighted much of what is known already. Mr Hubbard did business in an old-fashioned way, and backed businesses on the strength of a handshake. Some of the deals will be winners, some will be losers. For years his way of doing business was fine for his investors, who he had never failed.

The report measures his way of doing business against modern standards. His old world practices do not measure up in the managers' eyes. Whether or not this means he has committed fraud, remains to be seen.

- © Fairfax NZ News