One money manager says Australia’s foreign investor scheme needs tweaking to help small caps & start ups
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Foreign investors who pledge to spend at least $5m over four years in Australia have a special visa category just for them.
The Significant Investor Visa (SIV) was introduced by the Gillard government in 2012 to drive more foreign investment.
It was most recently tweaked by the Abbott government in 2015 to mandate that investors must put at least $500,000 into venture capital funds and $1.5m into eligible managed funds or listed investment companies (LICs).
The remainder must go into funds that invest in eligible assets including ASX stocks.
Now, the Morrison government is looking to reform the scheme and is undertaking an inquiry which closes on Friday. It reportedly wants to streamline the program and potentially encourage more investment in regional areas.
One fund manager that serves clients holding this particular visa is Atlas Advisors Australia. It has more than $1.7bn in funds under management.
Executive chairman Guy Hedley told Stockhead the government should look to encourage investors to put money into venture capital funds rather than managed funds or LICs.
In the short-term it may be immediately counter-intuitive to helping the ASX, but he said if the companies went on to list it would benefit the bourse.
“How do you create successful stocks? Our thesis is buying on the secondary market doesn’t,” Hedley said.
“VC is the riskiest and hardest to get growth funding but we have a number of start ups that we’ve [raised capital for] that have gone on to list.
“Why not make them put it into VC — if you do that, funds like ours will have the horsepower to back smart people in Australia who will take it to the ASX and create the next Afterpay.”
Hedley pointed to one ASX small cap, ride aggregator platform Jayride (ASX:JAY), as one that couldn’t have listed without the SIV scheme.
“I think it will be a unicorn — it will take a while, it’s diligent,” he said.
“But had we not funded it through the SIV it wouldn’t have made it out to the boards. To me it’s a good proof point of why that opportunity exists.”
Hedley also condemned the general red tape surrounding the scheme. He said many fund managers dropped out of it post-2015 because of compliance issues.
Most notably, fund managers must meet specific portfolio requirements under this scheme. Such a portfolio must have at least 20 securities and none can have a market cap exceeding $500m.
“The compliance risk is significant. Once, one of NAB’s funds breached and it self-reported but the investors still lost their visa,” he said.
“On the small cap side, that is why there has not been broad participation and for those which have like us it’s hard to get growth.
“There were 200 fund managers in the program pre-2015, [now] I think only half a dozen for us. It is complex to administer an investment across listed and venture capital.”