Axa Financial Adviser Quizzed About The Gap In Bond Arithmetic
Sydney Morning Herald
Tuesday March 6, 2001
The average investor in AXA Asia-Pacific's Prosperity Bond earned between 5 and 6 per cent a year on their secured portfolio investment and just over 2 per cent on their cash portfolio investment while interest of between 6.5 per cent and 10 per cent was sought on loans used to buy into the bond, the Federal Court was told yesterday.
The apparent inconsistency in the arithmetic was put to AXA financial adviser Mr Brian Beazley, the adviser approached in 1998 by Dr Peter Keller, the man who put together a private investment club which ultimately invested $175 million in AXA's Prosperity Bond fund.
Investors in the private club were given preferential treatment compared to other retail investors, including unlimited free switches between the secure and the cash funds as well as three days grace in which to cancel transactions.
Dr Keller is suing AXA for damages over its attempts to terminate the special switching conditions.
The money used by investors to leverage into the bonds was provided in most cases by the ANZ's private banking arm using bond valuations provided by AXA. The loans were for 90 per cent of the value of the investment. One investor, Mallesons Stephen Jacques partner Mr David Taylor, who invested $1.5 million in the fund, earned $32,000 in two months, an effective annualised return of 12.75 per cent.
The private investors' returns were boosted by arbitrage profits made from frequent switches between the two portfolios within the Prosperity Bond.
Mr Beazley told the court that he initially expected Dr Keller and his Coneview Pty Ltd investment club to invest between $10 million and $20 million in the Prosperity Bond fund.
He and AXA's investment and products manager, Mr Mark Yesberg, and Mr Taylor of Mallesons held a meeting in March last year at which AXA sought assurances that the Keller investment scheme was not a tax driven one and to determine what the other investors had been told.
Dr Keller had negotiated the investment club's special terms earlier when it had been agreed between the two parties that no investment advice was to be provided to the club by AXA.
Asked by Mr Richard White, SC, for Dr Keller, about the tax treatment of the loan interest, Mr Beazley said he did not think the investors could claim as a tax deduction the interest charges on loans used to buy the bonds but investors may have been able to claim if they took out a profit from the bonds every year rather than, as retail Prosperity Bond investors were required, wait until the bonds were cashed in to realise their profit.
The hearing continues.
© 2001 Sydney Morning Herald
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