Complying Investment Framework – Further Changes are Coming

The Department of Immigration and Border Protection (DIBP) is undertaking another review of the complying investment framework that was introduced in July 2015 that applies to Significant Investor Visa (SIV) and Premium Investor Visa (PIV) applicants.

Austrade are responsible for the policy settings of the SIV and PIV complying investment framework and they have stated that the review will not consider changes to the complying investment framework settings as outlined here other than changes to the quantum of funds required to be invested into venture capital and growth private equity (VCPE) and a small number of technical matters. It is stated that the rationale for not considering changes to the settings in the framework is due to the framework working well and industry devoting substantial resources to developing new products that comply with the enhanced rules.

In relation to the complying investment framework, Austrade is seeking feedback from the industry on a number of very specific points which indicates the likely areas of change following their review:

• Whether the quantum of the VCPE should be increased from $500,000 to $1 million;
• The likely impact on demand for both the SIV and the venture capital market if the VCPE component was increased; and
• Whether the emerging companies or balancing component should be reduced by $500,000 to compensate.

Austrade is also seeking feedback on what they see as technical settings of the complying investment framework including:

• Restricting the emerging companies component from investing in issuers that invest the proceeds in securities that do not meet the requirements for the emerging companies component. The example provided in relation to this is a small exchange traded fund which invests in large capitalised companies would not be compliant;
• Greater clarity on the scope of risk management that is allowed with respect to derivatives. Specifically the derivative should not be designed to substantially reduce or completely eliminate the exposure of an investor to the risk of loss and that capital protection should not be allowed;
• Whether there should be a look through for the cash holding restriction in a fund of funds structure; and
• Restricting the use of three layers in a fund of fund structure given the greater complexity in assessing the compliance of the structure.

Whilst it has been stated that the complying investment framework is “working well” many in the industry have been underwhelmed by the flows that have been generated by the program following the changes that were introduced in 2015.

Initial feedback from our SIV managers is that immigration agents and potential migrants see the possible changes as making the program less attractive once again. Our sources indicate there will be an increase in demand for applicants in the short term to ensure they fall within the current complying framework regime prior to any changes being implemented. This would be similar to the impact the 2015 changes had in pulling forward demand resulting in the DIBP suspending applications that would be grandfathered under the old regime months prior (24 April 2015) to introducing the new framework (1 July 2015).

The consultation paper can be viewed here with submissions due on Monday 31 July 2015.

Members of the One Investment Group are responsible for the most managers who have SIV complying products in the Australian market. Should you wish to discuss how the review may impact your existing SIV compliant funds, please contact us here.