ASIC has released revised disclosure benchmarks and principles for unlisted mortgage schemes, which it hopes will improve awareness of the risks of investing in these funds.
Regulatory Guide 45 has been revised in light of the liquidity issues experienced by a number of mortgage funds during and after the global financial crisis, caused by a substantial increase in the number of redemptions.
In some cases, the responsible entities could not realise sufficient assets to satisfy the requests and this resulted in a large-scale suspension of redemptions.
"ASIC's first priority is to ensure consumers and financial investors are fully informed and can make confident investment decisions. This is especially important when considering risky investments like unlisted mortgage funds," ASIC commissioner Greg Tanzer said yesterday.
"People need to understand the risks, particularly in relation to asset liquidity and withdrawal arrangements.
"It is important that investors understand that the assets of these schemes are less liquid than other investments and this affects any rights they have to get their money back."
Under the revised benchmarks, unlisted mortgage funds must estimate their cash-flow needs for the next 12 months, while funds should not have any borrowings.
"A mortgage scheme that relies on borrowings is unlikely to be sustainable in the long term," ASIC said in an accompanying investor guide.
The benchmarks also include requirement for asset valuations, suggesting companies should use a panel of valuers, rather than just one.
ASIC also stressed the importance of clear withdrawal arrangements.
"If a mortgage scheme pays distributions from sources other than an income received from its existing loans and investments, this could be unsustainable," the corporate regulator said.
"This may be particularly important if you are depending on distributions from the scheme for your regular income or for living expenses."
But unlisted mortgage funds can choose to have different benchmarks if they adequately explain why they have chosen a different path.
Responsible entities of existing unlisted mortgage schemes should disclose the revised benchmark and updated disclosure principle information to investors by 1 January 2013.
