Two Perpetual funds receive interim stop orders from ASIC

The Australian Securities and Investments Commission (ASIC) has issued interim stop orders for Perpetual Investment Management to prevent the firm from distributing two funds to retail investors.

This was because of deficiencies in their target market determination (TMD) and to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs.

The two funds were Perpetual Pure Microcap and Perpetual Geared Australian Share fund.

The interim orders stopped 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 were valid for 21 days unless revoked earlier. 

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The $114 million Perpetual Pure Microcap Fund was invested solely in a portfolio of Australian microcap equities. Microcap equities carried 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.

The $399 million Perpetual Geared Australian Share Fund was 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 came with elevated risks, including the potential for a high level of price volatility and the use of leverage, which ASIC said increased the chances of investors incurring large losses. 

ASIC was 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.

ASIC expected Perpetual to consider the concerns raised regarding the TMDs and take immediate steps to ensure compliance.

ASIC would consider making a final order if the concerns are not addressed in a timely manner. Perpetual would have an opportunity to make submissions before a decision is made about a final stop order.