In a trend-reversing effort, a NZ investment manager offering novel exposure to bitcoin funds is planning to launch into the Australian market under the trans-Tasman Mutual Recognition (TTMR) regime.
Released in its home country late in September, the Vault International Bitcoin Fund invests into the crypto-asset via four underlying funds based in Canada and the US.
While the product is structured to offer tax-effective and locally regulated access to the bitcoin funds for NZ clients, it also has potential appeal for Australian investors, according to Vault managing director, Vinnie Gardiner.
Gardiner said Vault was built under the NZ portfolio investment entity (PIE) rules that also provide tax-efficiency for offshore investors.
“Because the Vault product was established as a foreign investment PIE there is no NZ tax deducted against any Australian resident investors in the fund,” he said. “And all returns accumulate in the unit price with no taxable distributions to consider for Australian investors.”
Vault was also compatible with Australian wrap platforms used by financial advisers, Gardiner said, giving clients a more secure way to allocate to bitcoin than buying direct via cryptocurrency exchanges.
He said the NZ manager was hoping to list on Australian platforms if there was demand.
Currently, Vault invests through the US-based Grayscale Bitcoin Trust and three exchange-traded funds (ETFs) listed on the Toronto Stock Exchange managed by CI Galaxy, 3IQ Coinshares and Purpose.
The underlying managers provide institutional-grade custody for bitcoin, removing some of the risks involved in direct individual holdings through online or offline ‘wallets’, Gardiner said.
He said as in most markets, Australians were increasingly curious about crypto-assets including among self-managed superannuation fund (SMSF) investors where interest in bitcoin almost doubled in the 2021 financial year, according to Australia’s largest digital currency exchange, BTC Markets.
“We think the Australian market will mirror our experience in New Zealand, with interest coming from cryptocurrency curious investors wanting to invest through traditional channels they understand, or their trusted investment adviser,” Gardiner said.
Since launch a couple of weeks ago, the Vault fund has attracted over 600 investors across a wide age range and close to $3 million.
Co-founded by Gardiner along with Janine and Alan Grainger – the owners of NZ’s biggest cryptocurrency exchange, Easy Crypto – the Vault product uses Wellington-based Implemented Investment Solutions (IIS) as fund-host (acting in a similar capacity as the responsible entity in Australia). IIS has more than a dozen local and offshore-based fund-host clients including Australian managers such as Antipodes, First Sentier and Metrics.
Historically, though, most Australian fund managers have entered the NZ market under the TTMR, which enables issuers to offer products across the Tasman using the same disclosure documents as in their home market – albeit with a simple one-page notification.
The TTMR opportunity applies to managers in both NZ and Australia but to date it has been one-way traffic. According to the NZ government-run investment product disclosure register, Disclose, Australia-based options offered in NZ under TTMR represent over 1,150 of the total 1,700 issues in the database.
Australia does not have a comparable easy-to-access product register but in 2010 – two years after the regime launched – the-then chair of the Australian Securities and Investments Commission, Tony D’Aloisio, noted in a speech that there had been “559 Australian offers and 23 New Zealand offers made under the mutual recognition arrangement”.
A 2009 ASIC study found while NZ investors were enthusiastic consumers of Australian funds offered through TTMR, there was “no evidence that Australian investors invest in New Zealand MIS [managed investment scheme] products issued under the mutual recognition regime”.
But Gardiner said Vault could be the exception to the rule.
“There are hundreds of Australian funds being made to NZ investors under Mutual Recognition, so it would be great to return the favour,” he said.