Thinking | 21 January 2009

Inside this issue

Freeze on funds

The worldwide financial crisis and property market crash have brought to the fore many regulatory based provisions which until recently have largely been untried. One such provision is the restriction on allowing withdrawals from illiquid funds, and although the current crisis has been referred to as a financial ‘meltdown’, the result for many funds managers across the globe has been the opposite. Their funds have frozen.

Managed investment schemes and external management agreements

Managed investment schemes often adopt external management structures where the trustee of the MIS appoints a related entity of the trustee as an investment or asset manager for the MIS. Such arrangements are entered into for various reasons, which may include tax structuring, the ability to joint venture or even as an entrenchment device. Importantly, if the trustee is not given the opportunity to recover establishment costs and is unable to ensure that the establishment of the MIS is worthwhile, the trustee may be unlikely to establish the MIS in the first instance.
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Fund trustees’ obligations for member-directed investment

There has been a lot of finger-pointing over the past few months as members receive their benefit statements. Members point the finger at the fund trustees, who point the finger at their investment managers and assets consultants, everyone asking how the members came to be so heavily invested in strategies with a large concentration of assets in speculative, illiquid options. An interesting (and very topical) legal question arises out of all of this: what are trustees’ obligations in respect of members who, given a wide choice of different investment strategies, decide to have their member balances concentrated in a high-risk strategy with disclosed liquidity problems? As usual with superannuation law, the answer is that there is no simple answer.

AAT rules on PDS disclosure requirements

The Administrative Appeals Tribunal (AAT) has made some interesting comments about common features of a product disclosure statement (PDS) while reviewing a decision by the Australian Securities and Investments Commission (ASIC) to issue a stop order on a mortgage fund product PDS.

Guidance for overseas financial services providers

The Australian Securities and Investments Commission (ASIC) has recently issued a new Regulatory Guide RG121 (Guide) on ‘Doing financial services business in Australia’ (11 August 2008). While not an earth shattering event, particularly in light of other more pressing regulatory issues being addressed by ASIC in the current market turmoil, the Guide is quite a useful document.