In a statement on Friday, the corporate regulator said the interim orders stop Perpetual from issuing interests in, giving a product disclosure statement for, or providing general advice to retail clients recommending investment in the two funds — Perpetual Pure Microcap Fund and Perpetual Geared Australian Share Fund.
The orders are valid for 21 days unless revoked earlier.
“ASIC made the interim orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs,” the regulator said.
To date, ASIC has issued 17 DDO interim stop orders, including the orders for these funds.
The regulator explained that Perpetual Pure Microcap Fund is invested solely in a portfolio of Australian microcap equities, while Perpetual Geared Australian Share Fund is invested solely in a portfolio of Australian shares and employs leverage, with the fund being able to take on debts valued at up to 60 per cent of the fund’s total assets.
ASIC has described both funds as carrying a significant level of risk for investors.
“ASIC is concerned that Perpetual has not appropriately considered these features and risks in determining the wide target markets for the funds,” it said.
According to the regulator, the target market determinations (TMDs) for both funds include investors:
- with a capital preservation investment objective;
- intending to use the product as a core component (25 to 75 per cent) or satellite component (up to 25 per cent) of their investment portfolio;
- with a potentially low, medium or high risk and return profile;
- with a ’Medium’ investment time frame (under two years and up to eight years); and
- with a need to withdraw their money on a daily and weekly basis.
“Furthermore, ASIC considered that the TMDs did not meet the appropriateness requirements under DDO because they did not include any distribution conditions.”
The corporate regulator said it expects Perpetual to “consider” the concerns raised regarding the TMDs and take immediate steps to ensure compliance.
“ASIC will consider making a final order if the concerns are not addressed in a timely manner.”
So are all geared funds now going to be stopped, because they have a level of risk that ASIC isn’t able to understand ?
It is perfectly acceptable portfolio construction ton include small amounts of risky assets in conservative profiles. It actually makes sense as it provides further diversification. ASIC should go back to university.
And how much contempt do they have for the intelligence of Australian adults; who’d have though these public serpents think there are people out there who can’t understand that a “pure microcap fund” is riskier than, say, a blue chip fund.
ASIC has lost the plot – the perpetual geared share fund has been around forever -it is what it is and planners and advisers know when and how it can be used for clients for long term or $cost strategy and structure.
I recall several clients stating they were “conservative” and indeed their risk profile questionnaire showed similar. They wanted 100% direct equities and their opinion on “conservative” was blue chips without gearing. Risk profiles are subjective.