Perpetual funds hit with ASIC stop orders
Two Perpetual funds have been subjected to an ASIC interim stop order because of design and distribution obligation deficiencies.
The Australian Securities and Investments Commission announced that it had issued interim stop orders preventing Perpetual Investment Management Limited from offering or distributing two funds to retail investors because of deficiencies in their target market determinations. These funds are:
- Perpetual Pure Microcap Fund (ARSN 164 986 047); and
- Perpetual Geared Australian Share Fund (ARSN 103 864 688) (together, the funds).
The interim orders stop Perpetual from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investment in the Funds. The orders are valid for 21 days unless revoked earlier.
ASIC made the interim orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs. To date, ASIC has issued 17 DDO interim stop orders, including the orders for these funds.
Perpetual Pure Microcap Fund is invested solely in a portfolio of Australian microcap equities. Microcap equities carry a significant level of risk due to high price volatility, shallower market depth (with few traders and turnover in share transactions) and the limited operational history of microcap companies.
Perpetual Geared Australian Share Fund is invested solely in a portfolio of Australian shares and employs leverage, with the fund being able to take on debts valued at up to 60% of the fund’s total assets. The fund’s investment strategy comes with elevated risks, including the potential for a high level of price volatility and the use of leverage, which increases the chances of investors incurring large losses.
ASIC is concerned that Perpetual has not appropriately considered these features and risks in determining the wide target markets for the funds. The TMDs for both funds include investors:
- with a capital preservation investment objective;
- intending to use the product as a core component (25-75%) or satellite component (up to 25%) of their investment portfolio;
- with a potentially low, medium or high risk and return profile;
- with a ’Medium’ investment timeframe (under 2 years and up to 8 years); and
- with a need to withdraw their money on a daily and weekly basis.
Furthermore, ASIC considered that the TMDs did not meet the appropriateness requirements under DDO because they did not include any distribution conditions.
ASIC reminds financial product issuers that under DDO, they must define target markets for their products appropriately, having regard to the risks and features of their products. Issuers also need to consider how their product will reach the target market and have appropriate distribution conditions in place to ensure the product is directed towards the target market.
ASIC expects Perpetual to consider the concerns raised regarding the TMDs and take immediate steps to ensure compliance. ASIC will consider making a final order if the concerns are not addressed in a timely manner. Perpetual will have an opportunity to make submissions before a decision is made about a final stop order.
ASIC, silly question because it won’t happen but how do ISA Funds get away with Growth Assets being called Defensive Assets ?
Oh that’s right ISA Funds can do whatever they want, ASIC will never bust your best buddies.
REGULATORY CAPTURE CORRUPTION AT ITS WORST, ASIC & ISA Funds
There is definitely a disconnect between ISA funds and their TMDs.
Most of Perpetual’s business would come from advisers who understand the investments and the higher risk profile, but ISA Funds obtain investment without any consideration to what is most appropriate for the client. 😛