Source : Perth Now news
Aussie investors are suffering because a $250bn sector is still not providing a full picture to help people understand risks, a watchdog has warned.
An Australian Securities and Investments Commission (ASIC) probe into the private credit fund sector has found a litany of examples of poor practice in the sector.
The damning 58-page report highlights “opaque” fee structures, inconsistent reporting and weak government across the sector.
This, as a result, is resulting in investors not being given a clear picture of where risks are involved before they buy into a fund, ASIC says.
The probe reviewed 22 funds and, staggeringly, found just two of them “passed on the full economic benefits of interest and borrower fees onto investors”.
ASIC commissioner Simone Constant said funds were leaving investors in the dark about how their money was being used and what charges were being made.
“Private credit plays a growing role in the Australian economy. The fact that ASIC has issued six interim stop orders since September this year is clear evidence that practices have still not improved in line with this growth,” she said.
“While we have observed pockets of improvement, complexity and opacity persist, in some cases leaving investors unable to properly assess the risks and benefits of their investments.”
ASIC launched its investigation in November last year, reviewing the practices of 24 wholesale and retail private credit funds that combined are responsible for $18bn in assets.
And a year on from another report identifying poor fee, disclosure and conflict-management practices, it found many issues still remained.
“Investors should not need forensic skills to understand how a fund operates,” Ms Constant added.
“They provide the capital and they bear the risk – they are entitled to understand how their money is being used, how risks and conflicts are managed and whether decisions are made in their interests.
“When structures get so complex that in some pockets of private credit we have seen more special purpose vehicles within a group than employees to manage investors’ money, effective disclosure of risks becomes near impossible.”
Of the financial advice files the investigation reviewed, 43 per cent were non-compliant.
