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Lifting wholesale investor threshold will stifle small funds

Mike Taylor2 April 2024
Contradictory one way signs

The Government risks stifling the prospects of small funds if it lifts the wholesale investor test to $4.5 million, according to submissions filed with the Parliamentary Joint Committee inquiry into the Wholesale Investor Definition.

While it is early days in the inquiry process, the submissions already filed have come from small fund managers who argue that any change will play to the big end of town by stifling the opportunities for small managers to gain a foothold.

A real estate fund manager with $1 billion in assets under management, a 10-year track record and employing 23 people has told the Joint Parliamentary Committee on Corporations and Financial Services that changing the wholesale investor threshold will force investors into the more expensive retail investment arena.

“We believe changing the rules around wholesale investors is not a good idea mainly due to limiting the growth of new funds and extra costs of retail funds,” the company told the committee.

“The wholesale license regime has allowed our business to grow for the past 10yrs into a profitable business with multiple funds and investment strategies, this would not have been possible if the wholesale test was to move to $4.5m net assets.”

“The simple fact is that retail funds are considerably more expensive to operate and starting a funds management business from scratch in the retail space is very difficult. A change to the wholesale laws will stifle growth of new funds management businesses and further entrench larger existing players,” it said.

“Our business is at a stage where we can afford to offer retail funds which we will do if the laws change, however this extra cost will simply be passed on to investors, resulting in worse investment returns. We have never had a single complaint from an investor, from following financial news very closely, it does not seem many other funds have had issues either.”

“The current wholesale laws allow for a vibrant funds management system that is the envy of the world, we do not believe the system requires any changes and should be maintained.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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11 days ago

Wherever the wholesale investor definition lands, it should apply to all members of an SMSF.