Regulation of liquidity pondered

Consultation on statements of investment policy and objectives (SIPOs) could lead to new requirements for continuous disclosure of investment liquidity, it has been suggested.

Friday, September 12th 2014, 6:00AM 2 Comments

by Susan Edmunds

There have been calls in Australia for new regulatory requirements to address fund illiquidity, prompted by the recent experience with van Eyk’s Blueprint funds.

Four Van Eyk Blueprint funds had to be terminated by their responsible entity Macquarie after being invested in an illiquid asset.

It is believed that the illiquid asset could be parts of real estate projects linked to people involved in the scheme’s underlying manager, Artefact.

New Zealander George Kerr is a shareholder in Artefact. Kerr’s Pyne Gould controlled Van Eyk from 2010, when it bought out founder Stephen Van Eyk, until 2012, during which time Artefact was taken on as a manager.

Australian analyst Greg Hogan said regulators should re-evaluate how much responsibility responsible entities had when a fund becomes illiquid.

He suggested a continuous-disclosure regime. "Furthermore, it is submitted that there should be re-evaluation of the responsible entities' indemnity and limitation on liability where ‘non-viable' funds continue to accepting investors' applications," his submission to the Financial System Inquiry said.

New Zealand is in a different phase of regulation to Australia, bedding down the new Financial Markets Act rules, which incorporate more continuous disclosure for managed investment schemes, including mandatory quarterly reporting, although it is not clear that this would go as far as commenting on particular investments’ liquidity.

One source said the FMA’s current consultation on SIPOs could be the place to address it.

“That would be a logical place to impose any regulatory obligation of the sort contemplated, as limit breaks under SIPOs need to be promptly disclosed/reported - akin to a continuous disclosure obligation.”

The FMA is taking submissions on its framework and methodology prescribing elements that constitute a material limit break.

« Bank advice concerns questioned

IFA working on pro-bono offering »

Special Offers

Comments from our readers

On 12 September 2014 at 10:10 am LPL said:

The FMA should have taken a closer look at some of the funds offered by fund managers that closed in NZ and asked some questions; a sample few:
do any of the managers have money in these funds (positions before and after the fund was closed to retail investors)? When liquidity problems became known how long after did the fund close? Were all investors treated equally/privy to the same information?

I think if they had there would be a different view on this matter now.

On 12 September 2014 at 10:53 am Fred said:

Regulation has missed a simple but important step. All advisers, fund managers or 'Responsible Entities', should declare whether they are operating as Principal or Agent on every recommendation, transaction or selection - as in the USA.

I guess NZ's Fund Managers & Banks would oppose such clarity.

Sign In to add your comment