Lucas Georgiadis welcomes the proposed framework for limited partnership collective investment vehicles.
Last year, the Federal Government announced its intention to introduce a regulatory framework for two new types of collective investment vehicle (CIV). A corporate CIV will be introduced from 1 July 2017, and a limited partnership CIV structure from 1 July 2018.
The introduction of the limited partnership CIV framework is a much welcomed reform and will permit Australian investment via a well-known, internationally competitive vehicle. Hypothetically the new vehicle should attract greater foreign investment into Australian managed funds and bolster Australia’s presence in the USD 2 trillion + global private equity (PE) and venture capital (VC) market. Indeed this is one of the key objectives of the new framework.
In order to meet the proposed objective, we are hopeful that the new limited partnership regime will not have similar barriers to entry as the current managed investment trust regime, namely importing the general prohibition of the CIV controlling a trading business. If it does, it is difficult to see how the intended benefits will flow to fund managers in the Australian PE and VC industry.
Instead, such managers will be required to continue using complicated fund structures to manage their capital commitments which put them at a competitive disadvantage in attracting globally mobile capital.
The original control restriction was first introduced over 30 years ago to address policy concerns that have now otherwise been addressed by progressive tax reform. As such, the current CIV expansion project should challenge the necessity of including this restriction to meet current policy requirements as opposed to accepting it as a fundamental requirement.
The PE and VC industry is already a significant source of growth funding for Australian businesses with PE and VC funds investing $3 billion in Australian businesses in FY16. Whilst these numbers are significant and play an important role in the growth of our economy, they are comparatively low with more established markets which highlights the opportunity for growth in this sector.
In this respect the proposed limited partnership CIV presents a real opportunity to remove the handicap currently placed on Australian PE and VC fund managers. Consistent with the broader objective of the National Innovation and Science Agenda, this in turn helps growing Australian businesses gain access to their ‘fair share’ of global mobile capital investment.