DNZ will use $43 million of the proceeds to buy the management contract from chief executive Paul Duffy and former chairman Alastair Hasell.

David van Schaardenburg, an MMG director since June last year, when the former Money Managers business founded by Somers-Edgar in 1985 was sold, and chairman of its investment panel, says MMG is looking at commissioning its own independent report on the price being paid for the management contract.

Rather than raising equity, van Schaardenburg says DNZ should have been selling property to reduce debt, although that wasn't in the management company's interests because its fees are based on total assets.

The capital raising is "clearly very unfair to existing shareholders," he says.

DNZ has about 8,200 existing investors, mostly mums-and-dads retail investors who were advised to invest in the 32 Dominion Funds syndicates from which DNZ was formed on the advice of Money Managers.

DNZ's existing investors had no say in the float of the sale of the management contract. DNZ has two classes of shares with the retail investors owning the A shares and the manager owning all the B shares which have the voting power.

The management company had already been paid $4 million in April to compensate it for agreeing to reduce its ongoing assets-based fees by about $600,000 a year. It was paid $5.6 million in fees and expenses in the year ended March.

The new shares are priced at 82 cents, a 56% discount on net tangible assets (NTA) after the termination of the management contract.

The existing investors, who own 188.5 million shares, will have the value of their holdings slashed unless they buy one new share for every share they already own, but they are only being allocated $40 million worth, or 48.8 million shares. If all existing investors apply for shares they can only match 25.9% of their holdings.

An independent report by PricewaterhouseCoopers says if a holder of 10,000 existing shares can buy 5,000 new shares, the NTA of their total holding will drop by $2,832. If that holder buys no new shares, the NTA will fall $5,394.

The existing shareholders are also facing their income stream being slashed. Before the capital raising, DNZ had expected to pay investors a total $23.5 million in income for the year ending March 2010.

After the capital raising, the annual payout will fall to $12.8 million.

Existing shareholders are being offered the opportunity to sell their shares but only at the 82 cents a share offer price and only if the underwritten $130 million part of the offer is over-subscribed. Any sellers will also be charged 2% brokerage.