CLIENT BRIEFING PAPER
2013
BROSO ASSOCIATES LAWYERS
ESTABLISHING A
MANAGEMENT INVESTMENT
SCHEME IN AUSTRALIA
CONSIDERATIONS FOR
INVESTMENT MANAGERS
BROSO ASSOCIATES LAWYERS
This Client Briefing Paper provides a general
overview of some of the legal and procedural
issues involved in establishing a retail (registered)
or wholesale (unregistered) managed investment
scheme in Australia.
It is intended to be introductory in nature and does
not consider all of Australian financial services law,
which is as voluminous as it is complex.
Broso Associates has considerable experience in
advising and representing investment managers
in relation to the establishment of both retail and
wholesale funds across a broad range of asset
classes.
We would be more than happy to provide further
information regarding the topics and issues covered
in this Client Briefing Paper.
If you have queries regarding establishing a
registered or unregistered managed investment
scheme, or obtaining an Australian Financial Services
Licence please contact Benjamin Broso on
+61 424 796 563 or at
[email protected].
2
OVERVIEW OF THIS CLIENT BRIEFING PAPER
THIS CLIENT BRIEFING PAPER PROVIDES A GENERAL
OVERVIEW OF SOME OF THE LEGAL AND PROCEDURAL
ISSUES INVOLVED IN ESTABLISHING A RETAIL
(REGISTERED) OR WHOLESALE (UNREGISTERED)
MANAGED INVESTMENT SCHEME IN AUSTRALIA.
The Client Briefing Paper covers:
•
the circumstances that determine whether a fund will
need to be registered or not;
•
on overview of the difference between wholesale and
retail clients;
•
the requirements for the marketing of a registered
managed investment scheme through a
Product
Disclosure Statement; and
•
the practical aspects of marketing a wholesale
managed investment scheme through an Information
Memorandum.
WHO THIS CLIENT BRIEFING PAPER WILL ASSIST?
The Client Briefing Paper will assist:
•
Chief Investment Officers, portfolio managers and
other asset managers;
•
investment advisors, financial planners and
stockbrokers who regularly provide their clients with
PDSs and Information Memoranda; and
•
promoters of pooled investment vehicles who require
a broad overview of their obligations under the
Australian financial services law, in particular under
the Corporations Act.
3
CONTENTS
6INTRODUCTION
7
RETAIL VS. WHOLESALE CLIENTS
8
REQUIREMENTS FOR
REGISTERED FUNDS
9
PRODUCT DISCLOSURE STATEMENTS
10
REQUIREMENTS FOR UNREGISTERED FUNDS
11
IS AN AUSTRALIAN FINANCIAL
SERVICES LICENCE (AFSL) REQUIRED?
4
INTRODUCTION
Investment managers, irrespective of the asset class
they specialise in, face a labyrinthine legislative and
regulatory environment when they come to establish
their first fund or managed investment scheme.
(Note: the terms fund and managed investment scheme
will be used interchangeably throughout this briefing
paper).
Foreign investment managers should be aware that
Australian funds have historically been established
either as unit trusts or limited partnerships (LPs).
However the use of LPs has now all but disappeared
with changes to Australian tax laws treating LPs as
companies rather than as partnerships.
Ordinarily, the major decision for the investment
manager will be whether to establish a registered or
unregistered managed investment scheme. This will be
determined by whether the investment manager intends
to market their fund to retail investors in addition to or
in preference to wholesale investors.
It is preferable from a cost perspective, and particularly
if it is the investment manager’s first fund, to establish
an unregistered managed investment scheme rather
than registered managed investment scheme.
INVESTMENT MANAGERS,
IRRESPECTIVE OF THE ASSET
CLASS THEY SPECIALISE
IN, FACE A LABYRINTHINE
LEGISLATIVE AND REGULATORY
ENVIRONMENT WHEN THEY
COME TO ESTABLISH THEIR
FIRST FUND OR MANAGED
INVESTMENT SCHEME.
5
RETAIL VS. WHOLESALE CLIENTS
A financial product or financial service is provided to a person as a retail client
unless any of the following apply:
•
the price for the provision of the product, or the value
of the product to which the service relates, equals or
exceeds
•
AU$500,000;
the product or service is provided for use in
connection with a business that is not a small business;
(Note: section 761G(12) of the Corporations Act
defines a small business as a business employing less
than:
•
(i)
if the business is or includes the
otherwise
(ii)
manufacture of goods
- 100 people; or
- 20 people.
the person who acquires it provides a copy of a
certificate given within the preceding
2 years by a
qualified accountant that states that the person has
AU$2.5M or has a gross income
2 financial years of at least
net assets of at least
for each of the last
AU$250,000; or
•
the person is a professional investor.
FAILING TO REGISTER A MANAGED
INVESTMENT SCHEME THAT IS REQUIRED
TO BE REGISTERED IS A CRIMINAL OFFENCE
PUNISHABLE BY A FINE OF AU$22,000
AND/OR IMPRISONMENT FOR UP TO 5
YEARS FOR INDIVIDUALS AND A FINE OF
AU$110,000 FOR BODIES CORPORATE.
(Note: a professional investor means (among other things) an investor who has or
controls gross assets of at least AU$10M (including any assets held by an associate
or under a trust that the person manages)).
Where any of these exceptions apply the financial product or financial service is
provided to a person as a wholesale client.
Section 601ED(2) of the Corporations Act provides that if all of the interests in a
managed investment scheme will be issued to clients classified above as wholesale
clients, then the managed investment scheme does not need to be registered.
Determining whether or not the fund will be marketed to retail clients from the
outset is extremely important. Failing to register a managed investment scheme
that is required to be registered is a criminal offence pursuant to section 1311 of
the Corporations Act, punishable by a fine of AU$22,000 and/or imprisonment for
up to 5 years for individuals and a fine of AU$110,000 for bodies corporate.
6
REQUIREMENTS FOR REGISTERED FUNDS
If the fund will be marketed to (and interests in the fund issued to) retail clients
then not only will the fund need to be registered with ASIC, but the following will
also apply:
•
Responsible Entity which is a
AFSL authorising it to
operate a managed investment scheme;
the fund must have a
public company that holds an
•
Responsible Entity must have net tangible assets
0.5% of the value of the assets of all
managed investment schemes it operates, subject to a
minimum requirement of AU$50,000 and a maximum
requirement of AU$5M;
the
of at least
•
the fund must have a
Constitution that meets
601GB of the
the requirements of ss601GA and
Corporations Act;
•
the fund must have a
Compliance Plan that meets
the requirements of s601HA,which includes the
establishment of a compliance committee and ensuring
that the compliance committee functions properly; and
•
audit arrangements must be in place in relation to the
Compliance Plan that will satisfy the requirements of
s601HG, which requires the auditor of a compliance
plan to notify
ASIC in writing as soon as possible if
the auditor has reasonable grounds to suspect that a
contravention of the
Corporations Act has occurred.
The document under which interests in a registered managed investment scheme
is marketed and distributed is a Product Disclosure Statement (PDS). The PDS
must be lodged with ASIC and the Corporations Act requirements for the content
of PDSs are quite prescriptive.
7
PRODUCT DISCLOSURE STATEMENTS
Section 1013D of the Corporations Act provides that a PDS must include the
following statements, and such information as would reasonably be required for
the purpose of making a decision, as a retail client, whether to acquire the financial
product, including the following:
•
a statement setting out the name and contact details of
the issuer of the financial product (i.e. the interests in
the registered funds);
•
information about any significant benefits to which a
holder of the interests (the retail investor) will or may
become entitled, the circumstances in which and times
at which those benefits will or may be provided, and the
way in which those benefits will or may be provided;
•
information about any significant risks associated with
holding the interests in the registered fund;
•
if the interests will or may generate a return to the
investor
- information about any commission, or other
similar payments, that will or may impact on the amount
of such a return;
•
information about any other significant characteristics
or features of the interests in the fund or of the
rights, terms, conditions and obligations attaching to
those interests;
•
information about the dispute resolution system
that covers complaints by holders of the interests
and about how that system may be accessed by those
investors;
•
general information about any significant taxation
implications of holding interests in the registered
fund;
•
if the interests in the fund have an investment
component
- the extent to which labour standards
or environmental, social or ethical considerations
are taken into account in the selection, retention or
realisation of the investment.
As a matter of formality, section 1015C of the Corporations Act stipulates that a
PDS may be printed or in electronic form and must be:
•
given to the investor, or to the investor’s agent, personally;
•
or sent to the investor, or the investor’s agent, at an
address (including an electronic address) or fax number
nominated by the investor or the investor’s agent.
8
REQUIREMENTS FOR UNREGISTERED FUNDS
If the fund will only be marketed to wholesale clients then there will be no need to register
the fund with ASIC, however investment managers should consider the following:
•
PDS, ordinarily
Memorandum will be prepared and
distributed to prospective investors;
while there is no requirement for a
an Information
•
the Information
Memorandum is not required to be lodged
ASIC and is not a public document. However it should
still be prepared with a high degree of care and skill. Usually
it is prepared as a Confidential Information Memorandum and
with
a prospective investor may in addition be required to execute
a
Non-Disclosure Agreement prior to being granted access
to the document;
•
investment managers preparing an Information
Memorandum
need to be extremely careful that the document does not
contain any misleading or deceptive statements;
•
due the sophisticated nature of the investors to whom the
document is distributed, it is customary for the Information
Memorandum to include a detailed section on the Australian
(and International if necessary) tax implications of holding
and disposing of interests in the fund;
•
extreme care should be taken with any financial projections
included in the document which, if incorrect, may give rise to
legal action on the part of the investors.
Investment managers should be aware of the following matters in relation to any
projections they include in an Information Memorandum:
•
when an investment manager makes a representation with
respect to any future matter and the investment manager does
not have reasonable grounds for making the representation,
the representation is ordinarily taken to be misleading;
•
financial projections which are honestly made by a investment
manager and based on reasonable grounds are not misleading
just because they do not come to pass;
•
financial projections by an investment manager may be
misleading if:
(i) the investment manager does not believe in the
(ii)
there is no objectively reasonable basis for the
projections or is recklessly indifferent to the truth of
the projections; or
projections; or
(iii) there are important assumptions underlying the financial projections or qualifications to which the projections are subject that are not expressed in the Information Memorandum.
An Information Memorandum should not be circulated to any investors without a legal
review of the document, insertion of all relevant legal disclaimers and legal sign-off.
9
IS AN AUSTRALIAN FINANCIAL SERVICES LICENCE
(AFSL) REQUIRED?
In respect of registered managed investment schemes, the following matters
should be taken into account by the investment manager:
•
the responsible entity of a registered managed
investment scheme must be a public company that
holds an
AFSL authorising it to operate a managed
investment scheme;
•
the investment manager may require an
AFSL in order
to authorise advising on or dealing in interests in
the fund if it is carried out with sufficient system,
repetition and continuity to constitute a financial
services business;
•
in relation to what amounts to a financial services
business, in the decision in ASIC v McNamara (2002)
42 ACSR 488 it was determined that the offering
of units in a managed investment scheme to only 55
investors was sufficiently “systematic, repetitious and
continuous” that the operator of the fund was required
to be licensed;
•
if the operation of a managed investment scheme
involves dealing in financial products other than the
interests in the fund with sufficient system, repetition
and continuity to constitute a financial services
business, the investment manager may require an
AFSL
authorising dealing in those financial products.
In respect of an unregistered managed investment scheme, investment
managers need to consider the following:
•
interests in an unregistered managed investment scheme
that is exempt from registration under s601ED(2) are
still financial products and therefore the investment
manager may need an
AFSL to advise on or deal in
interests in the managed investment scheme if the advice
or dealings are done with sufficient system, repetition
and continuity to constitute a financial services
business;
•
if the operation of a managed investment scheme
involves dealing in financial products other than the
interests in the fund with sufficient system, repetition
and continuity to constitute a financial services
business, the investment manager may need an
AFSL
authorising dealing in those financial products;
•
if the managed investment scheme holds financial
products, the trustee or custodian of the fund
may require an
AFSL that authorises it to provide
a custodial or depository service.
10
Mergers + Acquisitions
Funds Management
Financial Services Compliance
Corporate Advisory
Cross-Border Transactions
Equity Financing
Capital Raising
Venture Capital
Takeovers + Reconstructions
Contract Negotiation
Foreign Inbound Investment
FIRB Compliance
Joint Ventures
Incorporated Alliances
Brand Protection
Intellectual Property Enforcement
Company Secretariat
ASIC Compliance
Corporate Governance
Film + Television
Post-Production + Digital Media
Talent Management
Employment + Industrial Disputes
Asset Protection
Commercial Litigation
Dispute Resolution