ASIC submission underplayed wholesale investor impacts

A suggestion in an Australian Securities and Investments Commission (ASIC) submission that raising the wholesale investor thresholds would not materially impact fund investment has been challenged by the Property Funds Association (PFA).

Answering questions on notice from the Parliamentary Joint Committee on Corporations and Financial Services, the PFA said that contrary to ASIC’s view, its members believed the changes would be “terminal”.

ASIC’s submission was quoted during a hearing of the Parliamentary Committee stating: “We do not consider such increases would have a material impact on the fund raising community”.

It said that by reducing the number of people in the wholesale investor cohort, there would be a commensurate reduction in the total funds available for investing.

“Our considered view is that the magnitude of the impact of this reduction is, with the information currently available, not able to be quantified,” the PFA said.

“It is clear however from discussions with industry participants, including Arcana Capital that attended the same hearing, there are a number of fund managers that clearly hold the view that a move in the threshold values of the magnitude proposed by ASIC would be terminal for their businesses,” it said.

“… that must be considered a material impact on the fund raising community. We are also of the view that no entity could determine how many businesses would be forced to shut down as a result of such changes,” the PFA said.

“We would also suggest that the materiality impact such a change would have should be considered beyond just the fund raising community, it should consider all stakeholders as the effects would extend across the whole sector, for example:

• Investors could be subject to greater fees and thus obtain lower returns.
• What impact does it have in regards to potential concentration of wealth across the population?
• In the event of fund management business being forced to shut down:

o What happens to their clients and the funds they have invested?

o What would happen to the investment funds, platforms and/or assets, that those clients are invested in?

• Increasing demand on financial advisers, a profession struggling to satisfy demand and already subject to complaints about the inability to obtain advice.