Significant Investor Visas – DIAC expands complying investments criteria

The Minister for Immigration recently released a new legislative instrument that significantly extends the categories for managed fund investments for the Significant Investor Stream of Subclass 188 and 888 visas (SIV).

A copy of the new instrument IMMI 13/092 (New Instrument) together with the explanatory memorandum can be found here. The new instrument replaces the previous instrument IMMI 12/117 (Existing Instrument) and is effective from 23 November 2013. The Existing Instrument continues to apply until that time.

Changes in New Instrument broaden the existing categories and introduce new categories of complying investments in which a managed investment scheme could invest in order to qualify under the Subclass 188 and 888 significant investor criteria. The major changes in the Existing Instrument are set out in the table below.


New complying investment category​Previous complying investment category​Implications for managed fund operators​
Cash held by Australian deposit taking institutions (including negotiable certificates of deposit, bank bills and other cash-like instruments)​Cash held by Australian deposit taking institutions​Clarifies that cash-equivalent instruments issued by banks other than a deposit account such as negotiable deposit instruments, bank bills and cash like instruments such as certificates of deposit can be held by managed funds as complying investments. ​
Bonds, equity, hybrids or other corporate debt in companies and trusts listed or expected to be listed within 12 months on an Australian Stock Exchange​​Bonds, equity, hybrids or other corporate debt in companies and trusts listed on any Australian Stock Exchange​Clarifies that managed funds can invest into initial public offerings of listed securities. ​
Bonds or term deposits issued by Australian financial institutions​None​This category did not previously exist. This category has been included to allow fixed income funds with corporate bond investments to take advantage of the SIV investment.​
Annuities issued by an Australian registered life company in accordance with section 9 or 12A of the Life Insurance Act 1995​None​ This category previously did not exist. This category has been included to allow fixed income funds with annuity investments to take advantage of the SIV investment. ​
Derivatives used for portfolio management and non-speculative purposes which constitute no more than 20 per cent of the total value of the managed fund​None​ This category did not previously exist and was possibly an oversight. The inclusion of this category recognises that most existing managed funds have as a part of their investment or hedging strategy the use of some derivatives for risk management purposes such as interest rates and foreign exchange swaps . ​
Loans secured by mortgages over the investments including infrastructure, cash investments, government bonds, listed securities, corporate bonds, real property, agribusinesses and annuities​None​ This category did not previously exist and recognises that certain managed funds may invest in physical assets through debt rather than direct ownership. The inclusion of this category is likely to benefit mortgage funds which were not previously included as a complying investment category.

So far, one of the major weaknesses of the SIV regime was that the list of complying investments for eligible managed funds in which an SIV applicant could invest was too narrow and the Existing Instrument did not reflect funds management industry practices. Examples include hedging using derivatives, exposures to assets being made via debt rather than equity and fixed income investments returns being made via investments other than government bonds and bank deposits.

Practically speaking, only a few categories of existing managed funds, such as direct property funds with only cash investments and unhedged Australian equities funds, are likely to fit squarely within the complying investments requirements under the Existing Instrument. One of the unintended consequences of the narrow listing of complying investments in the Existing Instrument was that, instead of facilitating investment in existing managed funds, the SIV regime created an imperative for fund managers to structure new managed funds which specifically met the strict criteria imposed by 12/117 and generates unnecessary expense and uncertainty.

The extension of the list of complying investments in the New Instrument is a welcome step by the Minister of Immigration which will result in a greater proportion of existing Australian managed funds being eligible to accept SIV investments. The resulting increase in the number of Australian managed funds that will now be eligible managed funds for SIV purposes will also give SIV applicants better access to quality managed funds with a good operational track record as well as significantly increase competition in the marketplace for SIV investment.

The 23 November 2013 effective date for the New Instrument means that applicants wishing to invest in a managed fund that only complies with the New Instrument will not be able to be granted the visa until after this date. This does not appear to be a big issue given that only a handful of visas have been granted so far.

Despite positive steps being taken by the Minister for Immigration in undertaking industry consultations and extending complying investments to cover a larger proportion of Australian managed funds, there remains significant hurdles in the SIV regime which hinders its intended purposes of sourcing substantial overseas investments. These include:

significant processing bottle necks which have resulted in only three applications being granted since November 2012 (according to Departmental reports);
lack of clarity on source of funding and legal accumulation of assets requirements; and
impediments to the legal transfer of funds from jurisdictions which have foreign exchange controls for the purposes of making SIV investments.
Hall & Wilcox’s migration and financial services team have significant expertise establishing SIV compliance managed funds and advising SIV applicants. For further details, please contact us.


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