A recent regulatory change in Australia sent ripples through the investment community. One of Australia’s top alternative asset managers, La Trobe Financial, was in the hot seat after the Australian Securities and Investments Commission (ASIC) triggered compliance intervention by placing interim stop orders on $11.5 billion worth of La Trobe’s managed funds. This piece assesses the events leading to the freeze, its ramifications, and most importantly, what it means for investors going forward.
ASIC’s Concerns About La Trobe Financial’s Marketing and TMDs
La Trobe was poorly marketing and mischaracterizing the risk associated with their 12 Month Term Account, 2 Year Account, and US Private Credit Fund to their prospective investors. La Trobe was questioned by the regulator about whether these products were indeed appropriate for average Australians and whether they understood that La Trobe was making high risk property development loans and marketing these products as safe loans.
Immediate Impact on Investors
While the various regulations were assessed, around 120,000 investors were not able to withdraw, and access, and use their investments which resulted in investments freeze worth almost 11.5 billion, causing anxiety across for a large number of classic retail investors and retirees. La Trobe Financial did attest the safety of the money and that payments of the monthly interests would unfailingly continue, but, still, the questions posed about the safety and liquidity for the untied investment products are of high value.
How La Trobe Responded
La Trobe Financial was able to respond to the concerns about regulatory inadequacies and to the corporate regulator’s requirements in record time. La Trobe Financial in proved the regulatory requirements by shipped the investments features complete, which included decreasing the percentage of investors in the investment froze and implementing strong the customer select policy and in embedded extensive customer. Within a week, the 12 Month and the 2 Year Account stop orders were lifted by the Australian Security investments Commission (ASIC), however, the order for the US Private Credit Fund still remains.
Lessons for Investors
This episode illustrates the need to track the flow of one’s investments and the risks associated with the investments. Non-bank investment funds do not have government guarantees as do bank deposits, and the returns may be much less than expected and dependent on the performance of underlying and perhaps illiquid and riskier assets. Regulators have imposed and continue to impose greater and stricter controls on the matching of investment products to the client’s situation, but the necessity of due diligence on the client’s side is still the burning need.
Regulatory Watch and Investor Protection
ASIC’s Regulatory Watch and swift intervention illustrates the legal need for issuers of financial products define who their products are for, and investors, in the light of any changes to the product or surrounding market, must check if the investment is still appropriate. The rapid resolution is undoubtedly a relief, but the reality of the situation demonstrates the undertaking of any regulatory action to improve the protection of investors can be done with little warning and in a disruptive manner.
Data Table
| Detail | Value |
|---|---|
| Funds Frozen | $11.5 billion |
| Investors Affected | 120,000 |
| Products Impacted | 3 (now 1) |
FAQs
Q: Can investors get their money out now?
A: Most accounts have had their investments and withdrawals frozen lifted, although one fund is still under review.
Q: Why did ASIC step in?
A: ASIC had concerns about risk and investment objectives not matching who the product was being offered to as well as suitability for the investors.
Q: Does La Trobe guarantee Returns?
A: No, returns are not guaranteed, and depend on how well the fund’s underlying assets perform.
This case at La Trobe Financial reminds us to be careful with how and where we put our investments and to be on the lookout for any possible changes to regulations that could affect the accessibility and safety of the funds.
