Investment funds' responsible entities (RE) must operate independently of fund promoters, Equity Trustees' head of funds management and institutional sales said yesterday.
"With few if any exceptions, the problems brought to light in the aftermath of the global financial crisis have been caused when the RE fund manager and promoter have been inextricably entwined," Harvey Kalman said.
"There is clear evidence that the RE environment has not only failed to protect some investors from the worst excesses of those they trusted with their money, but has also reduced their recourse in the event of wrongdoing."
Kalman said it was vital to ensure an RE with adequate funding remained in the aftermath of a collapse.
"This will give investors the likelihood of investors recovering all, or most, of their original investment," he said.
He said his concerns stemmed from issues facing investors in the $1 billion Premium Income Fund (PIF).
Some investors in the fund have formed the PIF action group, which tried - and failed - to convince ASIC to remove Brisbane-based fund manager Wellington Capital. Investors have alleged Wellington Capital's $7.55 million share placement may have breached the Corporations Act.
The group has called for Castlereagh Capital to manage PIF. The group would sidestep a $5 million removal fee payable to Wellington by convincing unit holders to change the fund's constitution at a meeting on 16 June.
Kalman said the conflict over PIF showed investor protection was not being discussed.
"While ASIC called for feedback on ways to strengthen the financial resources of REs last year, I believe there are other areas that need examination," he said.
"Investors in collective investments such as managed funds should be able to rely on the role of the responsible entity to protect their savings, but REs have been found wanting when fraud or inappropriate behaviour has occurred where managers used an in-house RE."
