New opportunities for managed fund investors
June 13 2008
New opportunities for managed fund investors and issuers on both sides of the Tasman
By Sue Brown, funds management and superannuation partner at commercial law firm DLA Phillips Fox
The New Zealand and Australian governments have today exchanged diplomatic notes bringing into effect new legislation introducing a new regime for Trans Tasman mutual recognition of securities offerings.
New Zealand fund issuers can now offer their New Zealand funds into Australia without the expense and administrative burden of complying with the requirements of Australian securities and fund raising laws.
Australian fund issuers can now offer their Australian funds into New Zealand under the new regime, which is more streamlined than existing Securities Act exemption arrangements.
Investors on both sides of the Tasman will enjoy increased choice of funds and particularly in Australia, may experience reduced costs reflecting the lower cost of manufacturing funds in New Zealand's lower compliance regulatory environment
New Zealand's Commerce Minister, the Honourable Lianne Dalziel, and Australia's Minister for Superannuation and Corporate Law, Senator Nick Sherry, today exchanged diplomatic notes bringing into effect a new regime for Trans Tasman mutual recognition of securities offerings. The regime gives effect to an inter-governmental treaty entered into between the Australian and New Zealand governments in February 2006, with the object of providing greater coordination of business law between the two countries, and of breaking down barriers to business.
Under the old regime, New Zealand issuers who wish to offer their funds to the both the Australian and New Zealand retail markets must comply with two regulatory regimes. As well as preparing a prospectus and investment statement in New Zealand, they must comply with the extensive and costly Australian requirements for offering to the retail market. These include registering the fund as a registered managed investment scheme, becoming licensed (under the Australian Financial Services Licensing regime) to operate the fund and issue units in it, preparing a Product Disclosure Statement (PDS) for the fund and becoming licensed to give any general financial product advice contained in the PDS.
For this reason, Trans Tasman offers emanating from New Zealand have been rare. Trans Tasman offers emanating from Australia have been relatively more common because the existing Securities Act (Australian Registered Managed Investment Scheme) Exemption Notice 2003, allows the offer of Australian registered managed investment schemes into New Zealand, subject to compliance with certain conditions. But there have been pitfalls - one of which caught out a number of Australian issuers in recent years, resulting in a potential obligation to repay investments plus 10% interest.
Issuers wishing to take advantage of the new distribution opportunities must lodge information and copies of key documents with the New Zealand Registrar of Companies for Australian issuers offering into NZ, and the Australian Securities and Investments Commission (ASIC) for New Zealand issuers offering into Australia. A prescribed warning statement must also be included in the offer documents provided to persons in the host country, which explains that the offer is subject to different laws and tax treatment.
The regime covers offers of managed investment schemes as well as securities (including shares and debentures). It will not cover offers of superannuation schemes or life insurance policies, for which the regulatory regimes are significantly different between the two countries.
The new regime presents the opportunity for New Zealand issuers to significantly increase their market, without incurring the additional significant expense and administrative burden of compliance with Australian Securities and fund raising laws.
Australian issuers who are able to structure their business in such a way as to manufacture and launch products in New Zealand will have the opportunity to offer those products into their home market on a cost basis that benefits from the lower compliance costs incurred by manufacturing the product in New Zealand. This could well mean lower fees for investors.