What is a wholesale managed investment scheme?
A managed investment scheme (‘Managed Fund’ or ‘Fund’) enables a group of investors to contribute money to acquire rights (interests) to an asset (or assets) who are not active in controlling the Fund’s day to day operations.
Managed Funds are usually structured using a unit trust (Trust), with the Fund typically controlled by an independent corporate trustee (Trustee). Every entity (such as the investment promoter) engaging in the business of providing financial services (such as the raising of investor funds), must hold an Australian Financial Services License (AFSL) issued by ASIC or be authorised to do so by an AFSL holder. The Trustee must hold an AFSL.
Investors invest in the Fund by way of an unregistered Information Memorandum.
With limited exceptions, there can only be a maximum of 20 wholesale investors in a wholesale fund or it is classified by ASIC as a retail fund.
It is recommended tax advice is obtained to help determine the best fund structure based on your needs. Pointer Lawyers do not provide tax advice and can recommend fund tax adviser specialists.
Who is a wholesale investor?
The following is a summary of ‘tests’ concerning who is considered a ‘wholesale’ client and can invest in a wholesale fund in accordance with Chapter 7 of the Corporations Act 2001 (note there are additional conditions and limitations concerning Australian residency on who can invest and if the fund being established is a managed investment trust):
Investment Size Test
If you are investing AUD $500,000 or more, you are automatically deemed a Wholesale Client and no additional documentation is required. The person will remain a wholesale investor even if their interest subsequently falls below $500,000.
Personal Wealth Test
A qualified accountant’s letter (not more than 6 months old and valid for up to 2 years) certifying that the investor has either of the following:
Net assets of at least AUD $2.5 million (including the net assets of any company or trust controlled by the investor)
Gross income for each of the last two financial years of at least AUD $250,000 (including the gross income of any company or trust controlled by the investor).
Professional Investor Test
A statutory declaration stating the investor holds an Australian financial services licence or is a ‘professional investor’ as defined in the Corporations Act. Professional investors may include APRA regulated bodies, AFS license holders, listed companies, or a person or entity who controls AUD $10 million or more.
Wholesale investor regulations change from time to time and you may be required to submit appropriate documentation in order to meet ASIC’s Wholesale Client regulations.
Owner/promoter ‘key’ considerations before establishing a wholesale fund include:
- Do you have tax advice?
- Do you have sufficient start-up capital to pay set-up and ongoing fees?
- Can you raise sufficient investor funds to make a commercial return from the fund?
- Is the fund asset(s) likely to be attractive to investors?
- What is the basis of and anticipated investor % annual return?
- Do you have sufficient experience and track record as investment promoter?