ASIC orders Perpetual to temporarily stop offering two funds holding over AU$500 million

Rick Steves

As at 30 September 2022, the Perpetual Pure Microcap Fund held $114.43 million in assets under management and the Perpetual Geared Australian Share Fund held $399.65 million in assets under management.

The Australian Securities and Investment Commission has issued interim stop orders preventing Perpetual Investment Management Limited (Perpetual) from offering or distributing two funds to retail investors.

The regulator claims there are deficiencies in the products’ target market determinations (TMDs) and the interim orders are meant to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation, or needs.

Perpetual funds too risky for retail investors

The orders are valid for 21 days unless revoked earlier. The funds are the following:

  • Perpetual Pure Microcap Fund – invested solely in a portfolio of Australian microcap equities. Microcap equities carry a significant level of risk due to high price volatility, shallower market depth (with few traders and turnover in share transactions) and the limited operational history of microcap companies.
  • Perpetual Geared Australian Share Fund – invested solely in a portfolio of Australian shares and employs leverage, with the fund being able to take on debts valued at up to 60% of the fund’s total assets. The fund’s investment strategy comes with elevated risks, including the potential for a high level of price volatility and the use of leverage, which increases the chances of investors incurring large losses.

The interim orders stop Perpetual from issuing interests in, giving a product disclosure statement for, or providing general advice to retail clients recommending investment in the Funds.

According to ASIC, Perpetual may have failed to appropriately consider these features and risks in determining the wide target markets for the funds. The TMDs for both funds include investors:

  • with a capital preservation investment objective;
  • intending to use the product as a core component (25-75%) or satellite component (up to 25%) of their investment portfolio;
  • with a potentially low, medium or high risk and return profile;
  • with a ’Medium’ investment timeframe (under 2 years and up to 8 years); and
  • with a need to withdraw their money on a daily and weekly basis.

Lack of distribution conditions

The government agency also found the target market determinations to be non-compliant with DDO requirements because they did not include any distribution conditions.

Under DDO, Perpetual must define target markets for their products appropriately, having regard to the risks and features of their products. Issuers also need to consider how their product will reach the target market and have appropriate distribution conditions in place to ensure the product is directed towards the target market.

If Perpetual does not take immediate steps to ensure compliance, ASIC will consider making a final stop order, but the firm may still make submissions before a decision is made.

As at 30 September 2022, the Perpetual Pure Microcap Fund held $114.43 million in assets under management and the Perpetual Geared Australian Share Fund held $399.65 million in assets under management.

Read this next

Retail FX

Weekly Roundup: John Oliver rips into MetaTrader, Binance to pay $10 billion

Welcome to this week’s roundup, where we delve into the latest developments in the Forex, Fintech, and cryptocurrency markets. Stay ahead of the curve with our comprehensive overview of the week’s most impactful events and trends across these dynamic sectors.

Retail FX

Lark Funding reopens to US traders, MyFundedFX picks cTrader

Canada-based prop trading firm Lark Funding announced it will once again welcome clients from the United States.

Institutional FX

Cboe FX volume falls to lowest level since summer

Cboe’s institutional spot FX platform, known as Cboe Spot, today announced its trading volume for the month ending February 2024, which took a step back after a strong rebound in December.

Retail FX

ThinkMarkets secures lucrative DFSA license in Dubai

Melbourne-based broker ThinkMarkets has secured a license from the Dubai Financial Services Authority (DFSA) after it has already incorporated its new subsidiary in the Dubai International Financial Center (DIFC).

Digital Assets

New Horizen Lays Out Its Vision Of A Modular, Proof Verification Layer For Web3 Networks

Horizen is forging a new path for the future of blockchain with its New Horizen initiative, which is building a modular Proof Verification layer that’s dedicated to verifying cryptographic proofs for any settlement layer, beginning with Ethereum. 

Digital Assets

Karma3 Labs Raises a $4.5M Seed Round Led By Galaxy and IDEO CoLab to Build OpenRank, a Decentralized Reputation Protocol

Using OpenRank, developers and web3 companies can build consumer apps where people can discover, use, fund, read, or buy something on-chain without worrying about getting spammed or scammed.

Digital Assets

Worldcoin down as Elon Musk sues OpenAI CEO Sam Altman

Worldcoin’s (WLD) token dropped following news of a lawsuit against related company OpenAI. The lawsuit was filed by Elon Musk and accused OpenAI and CEO Sam Altman of breach of contract.

Institutional FX

Exegy’s Liquidity Lamp adds intraday data to outperform S&P 500 by 31.8%

Exegy has incorporated intraday signals into its AI-powered iceberg order detection tool, Liquidity Lamp. By adding intraday data to a baseline mean reversion strategy, Exegy’s model outperformed the baseline by 10.5% and the S&P 500 (SPY) by 31.8%, respectively in the out-of-sample testing.

Industry News

Think Elon Musk backed your crypto exchange? ASIC’s latest reveal may shock you

In an absolutely shocking turn of events that nobody could have possibly seen coming, the Australian Securities and Investments Commission (ASIC) has bravely stepped forward to reveal that, yes, those videos of Elon Musk passionately endorsing a cryptocurrency exchange are as fake as a three-dollar bill.

<