Should MIS review single out property schemes?

managed investment scheme Sterling Income Trust senate Stephen Jones real estate

15 March 2023
| By Laura Dew |
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A financial services lawyer has raised questions about the managed investment scheme (MIS) review focusing so heavily on the real estate asset class. 

Last week, it was announced the Government would be conducting a review of the regulatory framework for managed investment schemes and would later open a public consultation into the matter.

This would explore whether the MIS regulatory framework was fit for purpose, had potential gaps or could be enhanced to reduce undue financial risk for investors. It would exclude matters such as litigation funding schemes, time-sharing schemes and issues relating to the tax treatment of MIS, among others. 

The review followed high-profile failures of property MIS such as Sterling Income Trust where elderly and retired tenant-investors were sold a ‘lease for life’ where their long-term tenancy was linked to investment performance. The scheme’s collapse was the subject of a Senate inquiry and civil penalty proceedings against the responsible entity of Sterling Income Trust.

However, Vince Battaglia, partner and financial services specialist at law firm Hall & Wilcox, questioned whether it was right for Treasury to focus so heavily on one single asset class. 

“Interestingly, there appears to be a focus on property funds. This is evident by the Minister [Stephen Jones] calling out both some failed property or property-related funds, but also liquidity requirements. 

“Key questions arise as to whether the failures in the funds mentioned in his release (Sterling Income Trust, Trio Capital and Timbercorp) were particular governance failures of that responsible entity rather than a failure of regulation in principle, and whether the unusual nature of the real estate investments of Sterling Income Trust and the risks associated with it bear any relationship with traditional property funds.

“A further question arises as to whether the law should single out and impose a particular regulation, or a higher standard of regulation, for certain kinds of registered schemes over others merely because the asset class is real estate or a real estate derivative. Managed investment schemes invest in all kinds of assets, many of which are more speculative in nature than real estate.”

He concluded the wide-reaching nature of the debate indicated the sector “may be in for a long period of industry debate”.

Battaglia also noted there were several areas he felt were in need of a review including the definitions of retail and wholesale clients and the liquidity regime for MIS.
 

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Submitted by Some Sh*t Don'… on Wed, 2023-03-15 13:34

"Managed investment schemes invest in all kinds of assets, many of which are more speculative in nature than real estate.”

So if that's the case, why is there such a high failure rate for Property MIS?

Estate Mortgage:
Nice high returns, nice and safe...
Insert your own picture of a giraffe!!!

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