ASIC’s surveillance program into the managed investment and superannuation sectors identifies holes

ASIC Commissioner Greg Tanzer has described as ‘disappointing’ a review of disclosure to investors by the unlisted property industry.

The review, part of a recent broader surveillance into the managed investment and superannuation sectors, including listed and unlisted property funds, found unlisted property schemes were failing to adequately disclose against benchmarks put in place to improve investors’ awareness of the risks of investing in these products.

‘The results are disappointing especially when, at a time in the rise of self-managed superannuation funds, many Australians are looking to invest in real estate. Property schemes have become popular investment vehicles for such people, but they do carry risks as well as opportunities,’ Mr Tanzer said.

‘When schemes aren’t adequately disclosing those risks, investors are put in a vulnerable position.’

In March 2012 ASIC introduced benchmarks that unlisted property schemes are required to address on an ‘if not, why not’ basis. The benchmarks addressed key issues including schemes’ gearing policy, interest cover policy, related party transactions and distribution practices (refer: 12-56MR).

ASIC’s review found schemes’ responsible entities (REs) either failed to address certain benchmarks or did not provide enough information. They also failed to provide the information in a single location on their website and/or in a single designated document.

‘While we are disappointed at the quality of the disclosure against the ASIC benchmarks, it was helpful to observe that the levels of leverage in the sample we reviewed appeared manageable,’ Mr Tanzer said.

As a result of ASIC’s surveillance, one scheme withdrew its Product Disclosure Statement from the market. A further three entities will be questioned about their disclosure. ASIC will also be meeting with industry to discuss its concerns and follow up compliance.

‘Schemes need to address each and every disclosure element in each benchmark and disclosure principle fully,’ Mr Tanzer said. ‘Where we find entities haven’t satisfactorily addressed benchmarks or disclosure principles, we may consider taking enforcement action.

‘A consistent approach should be taken when disclosing information. Entities should maintain a single stand-alone document, available in print or in an electronic form that represents to investors communication efficiency and cost effectiveness.

‘ASIC will engage with the sector so that these issues are addressed.

‘In addition, we would encourage real estate investment trusts (A-REITs) to consider providing more explanatory material to investors on an ongoing basis about the risks about the scheme and the policies in place to address them.’