The new managed investment scheme (MIS) regime could see a reduction in the number of fund managers open to retail investors, according to John Berry, Pathfinder Asset Management director.
Berry said anecdotal evidence suggest several boutique firms would not apply for an MIS licence – a condition under the Financial Markets Conduct Act (FMC) to operate in the NZ retail market post November this year.
“We are aware of some boutiques that are not applying for licences and are looking at other options for their business such as only making product available to wholesale investors,” he said.
Pathfinder joined the slowly-growing list of FMC-ready managers last week with the Financial Markets Authority (FMA) granting its MIS licence as of July 1 this year.
“Even though we had to make very few changes to our systems, obtaining the licence has involved a huge amount of work,” Berry said. “We are a boutique – the equivalent project for large institutions must be immense.”
He said while investors should benefit from a more robust and accountable retail funds management landscape, the licensing process could exclude some players from the field.
“The licencing regime provides a definite benefit for investors, requiring participants to meet standards for skill, infrastructure and resources,” Berry said. “It will, however, be a shame if regulation reduces the number of providers and sets a barrier for new entrants. Currently, the NZ funds industry has a healthy range of participants and a good focus on innovation, particularly from boutique managers.”
To date, 19 managers (not including Pathfinder) have been listed as MIS managers on the FMA website with property fund firm Oyster Management, Fisher Funds, and the Craigs Investment Partners fund offshoot Quaystreet Asset Management joining the fray this month.
The FMA estimates about 100 entities may eventually be licensed under the MIS rules. However, at least one boutique start-up – Forte Funds, launched by ex AMP Capital NZ portfolio manager, John Phipps, in 2014 – has indicated it would opt out of the process.
Forte, which had just over $11 million under management as per its latest accounts, closed to retail clients last year.
According to the Forte website, as of “7th November 2015, units in the Fund are no longer being offered to ‘the public’ (as that term is referred to in the Securities Act 1978).”
Investment managers dealing exclusively with ‘wholesale’ or ‘eligible investors’ do not have to apply for an MIS licence. Licensed managers are also able to offer products to wholesale investors that fall out the MIS ambit.