Netwealth seeks government support for $101m First Guardian client exposure

In an ASX listing on Monday, Netwealth Group revealed that Netwealth Superannuation Services (NSS) has submitted an application to Financial Services Minister Daniel Mulino seeking financial assistance under Part 23 of the Superannuation Industry (Supervision) Act.

According to the statement, a total of 1,088 Netwealth members have a combined exposure to the First Guardian collapse of $101 million.

“Any financial assistance granted will be applied to restore the fund and to compensate impacted members,” Netwealth said.

“The application seeks to restore members to their position prior to the fraud occurring.”

According to Netwealth, the $101 million exposure reflects “total member investments less redemptions” that were made before First Guardian responsible entity Falcon Capital suspended redemptions on 28 May 2024.

“Falcon recorded the investment value at approximately $128 million as at that date; however, Netwealth considers the performance returns and valuations unreliable,” it said.

Last month, Macquarie Investment Management Limited (MIML) committed to paying $321 million to cover the losses of thousands of Australians that invested in Shield through its platform.

ASIC commenced proceedings in the Federal Court against MIML following admissions that it did not act “efficiently, honestly and fairly by failing to place Shield on a watchlist for heightened monitoring”. 

The regulator also accepted a court-enforceable undertaking from Macquarie to ensure it pays members 100 per cent of the amounts they invested in Shield less any amounts withdrawn.

As superannuation trustee, MIML oversaw approximately $321 million in super investments into Shield by around 3,000 of its members between 2022 and 2023.

Macquarie has admitted the allegations in the proceeding, with the regulator noting it is a “matter for the court to determine whether the declarations are appropriate”.

Unlike Macquarie, Netwealth doesn’t have an $85 billion market cap to absorb the hit, leading it to seek the government’s help.

The minister can approve a Part 23 application if a number of criteria are met:

• the fund suffered loss from fraudulent conduct or theft; and
• the loss substantially reduced the fund, causing difficulties paying benefits; and
• approval is in the public interest.

Netwealth said it believes the First Guardian failure meets this criteria as “Falcon Capital Limited engaged in fraudulent conduct resulting in losses to the Netwealth Superannuation Master Fund”.

“Netwealth believes fraudulent conduct by other entities and individuals has also contributed to these losses,” it said.

“While acknowledging that work by liquidators and ASIC is ongoing, Netwealth believes sufficient evidence exists to establish that losses arose from fraud and that Part 23 requirements have been met.”

Netwealth added that, due to the considerable complexity surrounding the collapse, any ministerial consideration may “take some time”.

“It is premature to provide assurances regarding timing or outcomes. Any financial assistance granted may only partially compensate members for losses incurred,” Netwealth said.

While it is seeking government support, the firm told the ASX it “has the resources to honour any resulting legal or monetary obligations” should ASIC make a claim against it.

Netwealth maintained that it complied with all relevant laws in making First Guardian available on its platform

“We are continuing to work co-operatively with all relevant stakeholders including the government, the regulators and the liquidators to pursue the best possible financial outcomes for Netwealth members, whilst also supporting members’ wellbeing as the relevant legal and regulatory processes take their course,” it added.