ASIC stop orders generate ratings ‘hold’

Research and ratings house SQM Research has placed Keystone Asset Management’s Shield funds “on hold” in the wake of stop orders imposed by the Australian Securities and Investments Commission (ASIC).

In a statement issued soon after the ASIC announcement, SQM said it had revised the ratings of the multi-asset fund managed by CF Capital Investments from 3.5 stars to ‘hold’.

ASIC said its interim orders stop Keystone from offering, issuing, selling or transferring interests in the Balanced class, Growth class, High Growth class and Conservative class units of the Fund.

“ASIC made the interim orders to protect retail investors from acquiring products under PDSs that may be defective and not worded and presented in a clear, concise, and effective manner,” it said.

SQM’s notification placing the funds on hold noted that SQM had downgraded the fund in January “based partly on increased concerns about corporate governance and compliance”.

It said that as a result of the ASIC action SQM had changed the ratingof the funds to ‘hold’ with immediate effect noting that a hold status is usually in place for between two days to four weeks.

ASIC said it is concerned that the PDSs for the Fund may:

• contain misleading statements regarding Keystone’s legal role in unregistered schemes the Fund has invested in;
• not adequately disclose the nature, quantum and risks associated with the Fund’s investments in unregistered funds related to Keystone;
• contain misleading statements about the level of diversification of the assets of the Fund;
• not adequately disclose the performance fees that may apply;
• use inappropriate asset classifications to describe the investments in the underlying funds and the investments within those funds;
• give the impression that investors can make weekly withdrawals from the Fund when redemptions are at the absolute discretion of Keystone and may be subject to a two-year redemption lock-up period;
• not adequately disclose the conflicts of interest associated with investments in funds related to Keystone or how Keystone managed those conflicts;
• fail to disclose a change in the directors of Keystone or any information about the new director, their skills, experience and role; and
• fail to disclose the Fund’s investment approach to ethical considerations in a clear, concise and effective manner.

“ASIC will consider making final orders if the concerns are not addressed in a timely manner. Keystone will have an opportunity to make submissions before a decision is made about any final stop order,” it said.