Property Funds Association warns of overreach on proposed changes to wholesale investor test limits
Media Release: 28 February 2024
The Property Funds Association of Australia (PFA), the peak body which represents the unlisted property funds industry in Australia, has urged minimal changes to the wholesale investor test thresholds for managed investment schemes, which is currently being reviewed by government.
A recommendation by Treasury to substantially increase the wholesale investor net asset threshold would severely impact the wholesale fund industry, and be out of step with other countries, says Paul Healy, CEO of the PFA. “PFA members are largely AFSL wholesale licence holders, and any changes to the test have the potential to impact wholesale funds management businesses and their investors.
“We do not believe that isolated collapses, mostly in the retail market, justify any major changes to the test and will only prejudice investors and their access to more products at a lower cost.”
Healy said if changes are made, there must grandfathering. “Substantially increasing the net asset threshold without grandfathering has potential to be extremely damaging to unlisted property investors and funds.
“Grandfathering is essential for unlisted property investment schemes so that existing investors retain their wholesale qualification throughout the life of the investment.”
PFA believes the wholesale/retail investor split is currently balanced, with 84% of Australians unable to qualify as wholesale investors. “There is an argument that the current thresholds set in 2002 were too high, and that the current level of wholesale investors is by no means excessive.
“A healthy wholesale funds industry is an important part of the wealth management ecosystem and plays a particularly vital role in unlisted property.
“Wholesale unlisted property funds contribute strongly to property development, innovation, and economic activity.
“If the existing thresholds are substantially increased then many unlisted fund managers will face significant impact to their businesses and investors.”
He said several unlisted property fund members of the PFA have expressed concerns regarding sudden and excessive changes to the thresholds. “This change would have a disproportionate impact on unlisted property as most funds are only offered to wholesale investors.”
PFA says there is no evidence that investors are running into trouble with wholesale funds, and pointed out the most high profile collapses referred to in Treasury Consultation Paper were retail AFS schemes.
Mr Healy says the vast majority of unlisted property funds are relatively simple and easy to understand. “Investment in direct property forms part of an investors broad portfolio of investments, including both liquid and illiquid investments.