ASIC has confirmed it has placed interim stop orders on the offer and distribution of two managed funds directly to retail investors in response to deficiencies in the funds’ target market determinations (TMD).
The corporate watchdog confirmed the stop orders against the responsible entities of Australian Residential Property Fund (ARP Fund) — ResiFund (Resi) and the Private Property Trust No. 20 – Fawkner Property (Fawkner) — which prevents them from issuing interests in giving a product disclosure statement or providing general advice to retail clients recommending investment in the funds under the existing TMDs.
ASIC noted that the ARP Fund — which solely invests in a portfolio of Australian residential property assets — is low in liquidity, while investors in Private Property — which invests in a concentrated portfolio of commercial property assets and borrows money to support its investment activities — cannot withdraw their money from it in the first seven years of their investment.
Because of these “features and risks”, the regulator said that both funds are “not suited to the objectives, financial situation, and needs of all the retail clients in the target market”.
ASIC added that the TMD did not meet the appropriateness requirements under the DDOs because the distribution conditions in the TMD were inadequate.
The stop order for both funds is valid for 21 days unless revoked earlier.
The news comes only days after ASIC revealed it conducted surveillance on 13 managed fund providers and identified a number of concerns, including inadequate warnings or disclaimers about past or future performance, comparing the product to lower-risk products, indices or benchmarks and the downplaying of other risks when promoting fund benefits.
The corporate regulator confirmed that 13 responsible entities or trustees of investment funds have since voluntarily amended, or arranged to amend, their marketing materials and/or practices across 18 funds.
ASIC addressed its move against ARP Fund and Property Trust in a statement released on Tuesday.
“In this instance, ASIC made the interim stop orders to protect retail investors from potentially investing in a fund that may not be suitable for their financial objectives, situation or needs. ASIC expects the responsible entities involved to consider the concerns raised about the TMDs for their funds and take immediate steps to ensure compliance,” the statement read.
“If ASIC’s concerns are not addressed, final stop orders will be placed on the funds. The responsible entities involved will have an opportunity to make submissions to ASIC before any final stop orders are made.”
