On 3 October 2013 Australian Securities and Investments Commission (ASIC) released final guidance notes which, amongst other things, refined the definition of a ‘hedge fund’ to ensure such disclosure requirements are appropriately targeted at those funds that pose more complex risks to investors.
Following extensive consultation with industry, Class Order [CO 13/1128] Amendment of Class Order [CO 12/749] and an updated Regulatory Guide 240 Hedge funds: Improving disclosure (RG 240), make changes to the characteristics that require a registered managed investment scheme to be classified as a hedge fund.
ASIC Commissioner Greg Tanzer has stated in relation to the further guidance, “Our changes will benefit the industry by relieving some lower-risk funds from the more extensive disclosure obligations imposed on a hedge fund.”
ASIC’s disclosure requirements for hedge funds commence from 1 February 2014.
After extensive consultation with the industry, ASIC has tweaked its definition of a hedge fund, to reduce the number of products that fall within the strict category requirements.
Product providers had previously expressed strong concern that some low-risk retail products which use complex instruments to reduce volatility, may have fallen within the definition of a hedge fund. This would increase the reporting burden on the product provider and also limit the degree to which these products could be marketed to retail investors.
A “hedge fund” is defined in Class Order [CO 12/749] as a registered managed investment scheme which:
a) is promoted by the responsible entity using the expression and as being a “hedge fund”; or
b) satisfies two or more of the following limbs:
This class order will assist industry by expanding some of the existing carve-outs and providing greater clarity about the operation of some of the characteristics in the definition. An anti-avoidance clause has been inserted to ensure that responsible entities do not structure schemes with the sole or dominant purpose of avoiding those schemes being characterised as hedge funds.
OPERATION OF THE CLASS ORDER*
The class order:
The class order contains a transitional provision which allows the responsible entity of a simple managed investment scheme:
to continue using that PDS until 1 February 2014.
If the fund meets (or continues to meet) the definition:
One Investment Group welcomes the amendment of the class order as this will enable numerous of our client’s funds who were caught by the loose definition to classify their funds appropriately. One Investment Group provides Responsible Entity and Trustee services to in excess of 120 funds of varying asset classes including equities, fixed income, cash, real estate and alternatives. Members of the One Investment Group are also able to provide Custody, Registry and Fund Administration services, either as a comprehensive package or alternatively on a service by service basis.
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*See Explanatory Statement on ASIC Class Order [CO 13/1128]