In May, ASIC warned consumers about some investment managers’ claims comparing their fixed-term investment products to bank term deposits. ASIC’s concern centred on some issuers’ claims their products were alternatives or substitutes to term deposits. The regulator said some issuers may not be well-capitalised nor supervised by the Australian Prudential Regulation Authority (APRA). Additionally, such investments were not protected by the Government’s Financial Claims Scheme and they may be “backed by concentrated portfolios of higher risk unlisted and illiquid assets.”
Now ASIC is looking at the names given to investment funds “cash” investment products. It said it had assessed 350 funds in the cash, fixed-income, mortgage and property sectors. These funds held in excess of $65 billion in assets.
Cash is understood to be something which can be withdrawn quickly and at a known value.
It found “confusing and inappropriate product labels” on 14 cash funds. ASIC described some funds’ underlying assets as “more akin to a bond or diversified fund” and thus the funds had a higher risk profile with less liquidity than a traditional cash fund. Funds described as “enhanced cash” or “cash plus” figured significantly.
ASIC stated a mismatch between investors’ expectations of withdrawal from a fund and funds’ own actual redemption practices also presented a problem “in a small number of funds”. Three funds were found to have a “significant mismatch between redemption features and asset liquidity”. The short redemption terms did not line up with the nature of the underlying assets.
Undertakings from over a dozen funds were obtained to change their name to something more appropriate or at least review the justification for referring to their investments as cash funds. Some funds responded by changing the assets in their funds and one fund went so far as to liquidate itself.
ASIC noted most funds were appropriately labelled, although its “engagement with some responsible entities is continuing.”