The Australian Securities and Investments Commission (ASIC) has placed interim stop orders on the offer and distribution activities of two property sector managed funds aimed at retail investors as a result of deficiencies found in their target market determinations (TMD).
The two funds under regulator scrutiny are the Australian Residential Property (ARP) Fund, with Open Corp Funds Management Limited trading as ResiFund as its responsible entity, and the Private Property Trust No 20, with Fawkner Property Ltd as its responsible entity.
The ARP Fund invests solely in Australian residential property, used gearing to do so, engages in property development activities and has a relatively low level of liquidity.
The trust invests in a concentrated portfolio of commercial properties with the use of gearing and operates such that invested parties cannot redeem their money for the first seven years of the investment.
ASIC has determined both products are not suited to the financial objectives, situation and needs of the target markets they have identified. This includes investors with capital preservation as a priority, who intend to use the product as a core component, being 25 per cent to 75 per cent, or a stand-alone component, being 75 per cent to 100 per cent, of their investment portfolio, who have a medium to low risk profile, and who have a need to withdraw their money on a yearly basis.
In addition, the trust was pitched to individuals who were seeking a product that would guarantee capital protection, people with a medium and potentially short investment timeframe, and investors who would need to withdraw their money before a seven-year duration.
The action taken is part of ASIC’s enforcement of the design and distribution obligations placed on product providers that was introduced on 5 October 2021.
To this end, the ARP was found to have inadequate distribution conditions in its TMD, while the trust’s TMD did not adequately describe the class of retail clients in the intended market or specify mandatory review periods, and failed to meet the appropriateness obligations as it had not specified any distribution conditions.
Both interim orders are for 21 days and ASIC has the ability to take further regulatory action if necessary.