Private equity and venture capital funds have urged the Australian Securities and Investments Commission (ASIC) to address the “flawed implementation” of new fee disclosure laws and warned of the consequences for the sector and mum and dad investors, according to the Asian Venture Capital Journal’s (AVCJ) Annual Private Equity and Venture Forum.
The industry said that the lack of clarification from the regulator on the indirect cost concept may lead to increase the management expense ratios of high performing private equity funds which would subsequently have adverse consequences for the sector and their mum and dad investors.
Under ASIC’s new fee disclosure regulatory guidance, (RG 97) issuers of the superannuation products and managed investments would be required to identify “indirect costs”.
However, according to ASIC, the industry was applying different measures to determine and treat the fees and costs, in particular those associated with investments in underlying investment vehicles, which resulted in significant variation in the disclosure.
Pacific Equity Partners’ managing director, Cameron Blanks, said that the new regulation may cause the management expense ratios of private equity and venture capital funds to be inconsistent when compared to other asset classes.
“Fee disclosure under RG 97 could lead to reduced allocations to PE and VC, which could be detrimental to superannuants’ returns,” he said.
“Annual management expense ratio and indirect cost ratio calculations can lead to inconsistent comparisons across different asset classes.
“Reducing a large range of very different (and sometimes complex) fee structures into an aggregated fee metric on product dashboard means that the interpretation of that metric should be treated cautiously.”