Australian asset managers will be able to sell new products to global investors under the Corporate Collective Investment Vehicle (CCIV) regime expected to be passed by parliament later in 2018. The regime creates a globally recognized fund structure aimed at attracting both foreign investors and international fund managers to Australia, while facilitating the country's participation in the Asia Region Funds Passport (ARFP).
Attracting offshore investors
Key insights
- Australia's CCIV regime aims to increase the competitiveness of the country's fund management industry while unlocking more foreign investment
- As a globally recognized fund structure, the CCIV is seen as reducing barriers to entry to the Australian market for foreign fund managers
- The asset management industry hopes CCIVs can operate without a withholding tax, but this issue remains unresolved
Interest in CCIVs has been growing, particularly in Europe and Asia. Australia has previously lacked a fund management vehicle that can be sold to investors across jurisdictions, such as the European Union's UCITS fund regime. Australia's proposed CCIV, which uses a company structure limited by shares, is intended to address this and is modeled on the United Kingdom's Open Ended Investment Companies regime, which has had success in attracting offshore investors. The CCIVs may be closedended or open-ended, retail or wholesale. As companies in themselves, they will be passive investment vehicles with the ability to create sub-funds that do not need to be legal entities.
Australia sees a competitive boost
After three decades of a mandatory national pensions scheme, Australia's retirement savings pool increased to AUD 2.6 trillion at the end of 2017 to become the world's fourth largest, although the country has had only modest success exporting its fund management expertise. Only 3.4 percent of Australia's assets under management are from offshore, compared with 68 percent in Hong Kong.1
“Australia's ability to attract foreign investment has for many years been sub-optimal due to the reluctance of certain overseas investors to put their money into trust structures," said KPMG partners Natalie Raju and Jamie Levy. “The CCIV regime would create an alternative for Australian investment outside of traditional trust structures."2
Another key aim of the CCIV regime is to align Australia's regulatory framework with international regimes
It will also be intricately linked with the fortunes of the ARFP, which aims to facilitate the cross-border marketing of managed funds across participating economies, which include Japan, South Korea, New Zealand and Thailand. The success of the CCIV initiative in Asia is seen as dependent on foreign investor response to the ARFP and an early test will be the Pilot Program, announced in January 2018, which invited fund managers to participate.3
Lower barriers to entry
Another key aim of the CCIV regime is to align Australia's regulatory framework with international regimes, which should have the effect of lowering the barrier to entry for foreign fund managers seeking to operate in the country. Foreign managers may also find the Australian regulatory documentation process easier to manage with the availability of this more "internationally recognizable funds structure," said David Court, from Australian law firm Holley Nethercote.4 “Also, the introduction of the ARFP will lower barriers to entry into the Australian market for certain Asia-Pacific jurisdictions."
Tax treatment still an issue
The asset management industry has been lobbying the federal government over the question of withholding tax, which it says needs to be eliminated to make the new structure as attractive as possible. However, this remains unresolved. “The reality is that many Australian CCIVs will make distributions that largely do not attract any Australian withholding taxes," said a report from PwC.5 “For example, franked dividends, widely held interest-bearing debentures, and non-taxable Australian property capital gains do not attract withholding tax."
Another consideration is to bring the CCIV framework in line with Australia's existing Managed Investment Scheme (MIS) regime, with the industry calling for clear guidance on the steps required to transition from a MIS to a CCIV.6 The requirement for the corporate director to be an Australian public company could also add costs and complexity in the case of wholesale funds, according to industry feedback during the government's consultation period.7
Those concerns aside, Australian fund managers will keenly await the CCIV legislation to pass later this year and look forward to having another vehicle to attract foreign investors.