The fund manager ring-fenced about 12% of the fund that was managed by LM last year after the Australian firm could not redeem the $10.1 million investment due to a first-ranking charge with Commonwealth Bank of Australia. Deutsche Bank in Sydney has stepped into the breach, putting up some A$90 million for LM to refinance its First Mortgage Income Fund.

An ING spokesman said it was good news that LM had refinanced itself, but it was too early to determine what will happen with the ring-fenced portion of its PPS Mortgage Fund.

Once LM starts making redemption payments, ING will use the net proceeds to subscribe to units in the live part of the PPS Mortgage Fund, and the ring-fenced portion will cease to exist once all of the units have been cancelled, according to the latest prospectus update.

As at June 30 2009, the Mortgage Fund had total unit holders funds of $64 million, down from $93.8 million a year earlier.

In a letter to its investors, LM said it has to act in the interests of both those who want to stay in the fund, and those who have requested redemptions. To that end, it will first begin new lending transactions to boost the returns for all investors, then begin its redemption programme before reopening the fund to news investors.

It expects to announce its redemption programme over the next two months.