The Australian Direct Property Investment Association (ADPIA) has opposed reforms proposed by the Australian Securities and Investments Commission (ASIC) in relation to the responsible entities of managed investment schemes (MISs), which it says would reduce competition in the sector without further protecting investors from the loss of capital.
ASIC’s consultation paper 140 (CP 140) seeks feedback on its proposals that aim to reduce investor risk in the wake of the collapse of several major agribusiness providers. The proposals include restricting guarantees and indemnities to related parties to help responsible entities survive the insolvency of a parent; requiring rolling 12-month cash flow projections; and changing liquidity provisions to ensure adequate resources are available to deal with unexpected situations.
In its submission, ADPIA stated that many of the proposals would not have the intended consequences.
ADPIA President Robert Olde said the association would support any proposals that would ensure managers would have adequate resources to avoid insolvencies.
“However, the proposed reforms are not likely to have prevented the collapses that caused the greatest damage to investors because those companies were, prior to the GFC, in a very robust financial position such that they could have met the increased financial requirements now being proposed,” he said.
The reforms would likely force small to medium-sized fund managers from the industry and would block new entrants and reduce competition, Olde said.
“Additionally, we do not believe the reforms will meet what we consider to be ASIC’s primary objective, which is to prevent or minimise investor losses that flow from the insolvency of a responsible entity,” he said.
“This should be addressed through reform of the insolvency laws that encourage the appointment of temporary responsible entities that can step in to protect fund assets prior to the appointment of insolvency practitioners.”
The reforms proposed in CP 140 would not have prevented the collapse of large agribusiness MIS operators had they been in place in 2008 and 2009, Olde said. Rather, the results could have been worse if there had been less competition providing additional investor choice, he said.
