Fund managers looking to develop products that comply with the new significant investor visa rules must take into account the conservative risk appetite of overseas investors, warns a commercial law firm.
From 1 July 2015 new applicants for the Australian government's significant investor visa (SIV) program have been required to allocate at least $0.5 million to venture capital, at least $1.5 million to emerging companies and up to $3 million in one or more balancing investments.
This change is a "potential boost" for Australian fund managers, said Hall & Wilcox partner Harry New – but a question mark remains over SIV investors' risk appetite.
The new regulations requiring SIV investors to invest in start-ups and emerging companies may be particularly "alarming", Mr New said.
"We have worked closely with both Australian managers and SIV investors, and to date these investors have wanted low-risk investments and property investments.
"They have typically demanded investments they understand, hence the appeal of government bonds and property. They place a high value on safety and asset classes they can trust," Mr New said.
There are still opportunities for Australian equities and property funds managers, he said – but they need to structure their products to cater for SIV investors.
"This market segment had previously not attracted a significant proportion of the SIV market as investors look to the security of government bonds or the perceived more secure returns offered by property development funds and mortgage funds.
"There is a big opportunity provided those products are tailored to the SIV market," he said.
Eugene Chen, partner and head of Hall & Wilcox's China Practice, said success in the SIV sector requires a degree of cultural awareness.
"Fund managers come to us for advice on how to build a fund that is attractive to Chinese investors," Mr Chen said.
"They soon realise that the SIV isn’t going to be a gold mine if they don’t adapt their product offering.
"We know that SIV investors like investments that they can understand easily, and they may gravitate towards those underpinned by bricks and mortar," Mr Chen said.
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