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November 25, 2022

Australian regulator temporarily bans two Perpetual funds over elevated risks

The Australian Securities and Investments Commission (ASIC) has imposed a provisional ban on two funds offered by Perpetual Investment Management to retail investors.

The interim stay has been placed over the significant number of risks posed by the funds.

The ban, which will last for 21 days if withdrew earlier, involves the Perpetual Pure Microcap Fund and Perpetual Geared Australian Share Fund.

According to ASIC, both the funds have ‘deficiencies in their target market determinations (TMDs)’.

The move allows ASIC to safeguard retail investors from making investments in funds that not benefit for their financial goals.

Perpetual Pure Microcap Fund was invested exclusively in a range of microcap equities based in Australia.

Such equities feature a substantial level of risk because of high price volatility as well as lower market penetration and the little operational history of microcap firms, stated ASIC.

The Australian regulator also noted that Perpetual Geared Australian Share Fund was invested in several Australian shares and used leverage. The fund also took on debts valued at around 60% of its total assets.

Its investment plan includes high risks, such as the possibility of a high level of volatility in terms of price and the use of leverage that could inflict heavy losses on investors.

However, Perpetual ignored these features and risks when distributing the funds, stated ASIC.

In a statement, ASIC said: “ASIC is concerned that Perpetual has not appropriately considered these features and risks in determining the wide target markets for the funds.”

The watchdog added: “ASIC considered that the TMDs did not meet the appropriateness requirements under design and distribution obligations (DDO) because they did not include any distribution conditions.”

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