ASIC private credit review prompts 3 interim stop orders
Three managed investment schemes have received interim stop orders from ASIC, including two private credit funds run by La Trobe Financial Asset Management.
The $215 million La Trobe US Private Credit Fund, $11 million La Trobe Australian Credit Fund, and $50.9 million RELI Capital Mortgage Fund have all received interim stop orders to protect consumers and retail investors from investing in a product that may be unsuitable.
On the Australian Credit Fund, ASIC is concerned that the target market for La Trobe’s 12 Month Term Account and 2 Year Account products suggest an inappropriate level of portfolio allocation given the risks of the Fund and do not include appropriate distribution conditions.
“The fund provides investment offers in seven investment accounts with different investment terms, yield and characteristics. The 12 Month Term Account and 2 Year Account are invested almost entirely in loans secured by registered first mortgages, with the exception of small cash and term deposit holdings held to meet cash requirements,” ASIC said.
On the US Private Credit Fund, it said La Trobe suggests an inappropriate level of portfolio allocation given the risks of the Fund and does not adequately specify an investment time frame for retail clients.
“The fund invests primarily into a portfolio comprised of senior secured first-lien term loans issued to US corporate middle market companies. These US companies are not rated by any rated agency and investing in these loans involves an above average amount of risk and volatility or loss of principal,” it said.
Meanwhile, on the fund offered by RELI, the target market potentially includes investors who intend to hold the fund as a ‘Core Component’ (25–75 per cent) of their portfolio, the fund’s risk level ‘Risk level 3 (Low to Medium)’ is an incomplete measure of the fund’s risk, the TMD states that the Fund is suitable for investors seeking capital preservation, and the TMD specifies that no distribution conditions are necessary for the fund.
The interim orders prevent La Trobe Financial and RELI Capital from dealing in interests giving a product disclosure statement for, or providing general financial product advice to, retail clients recommending an investment in the Fund. The orders are valid for 21 days unless revoked earlier.
To date, ASIC has issued 95 interim stop orders and one final stop order under DDO since the inception of the regime.
AUTHOR
Laura Dew
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