ASIC’s wholesale investor test in play
Renewable energy investors say the corporate watchdog’s push to change the definition of a sophisticated investor could hurt much-needed funds for the energy transition.
Renewable energy investors say the corporate watchdog’s push to change the definition of a sophisticated investor will jeopardise much-needed funds for the energy transition, and are hoping Jim Chalmers stands by a parliamentary committee’s finding last year that dismissed changes.
The Australian Investments & Securities Commission wants to change the requirements for a person to qualify as a “wholesale investor”. Current rule requires they have $2.5m in assets or a gross income of $250,000 a year. ASIC wants this to be higher, arguing the test hasn’t been changed in 20 years and too many people will soon qualify, with the percentage of Australian adults that meet the test hitting 16 per cent, up from 1.9 per cent in 2002.
Kilara Capital managing partner Ben Krasnostein, who just announced a new venture with Salter Brothers for hundreds of millions of dollars in renewable investment, said funds dedicated to renewables were at risk if the rules were changed.
“We are planning to build Australia’s largest decarbonisation investment platform via our joint venture and are in the market for investments and capital raising for our private equity fund. If these thresholds go up, it would directly affect us and other managers seeking to raise capital from a broad cohort of wholesale investors,” he said. “By extension, it would limit domestic capital becoming available for the decarbonisation of industry and the energy transition.”
He said the higher thresholds would “stifle investment” and act as another regulatory burden in the Australian market, similar to proposed merger and acquisition rule changes and the recent uncertainty around capital gains tax.
Mr Krasnostein said specialist investor fund managers were better placed to be making investments in renewables than more passive investors such as superannuation funds.
Former Queensland premier Campbell Newman, who fought against attempts to change the thresholds last year, said lifting the thresholds would hit several areas of investment, including renewables. “The government should view ASIC’s heavy-handed approach to this issue with serious concern. It is beyond doubt that the current agenda will significantly curtail investment in new technology ventures across IT, biomedical innovation and renewable energy,” he said.
“While the Prime Minister and Treasurer Jim Chalmers are explicitly encouraging private capital to support these sectors, ASIC appears intent on rowing in an entirely different direction – effectively preventing more than a million Australian investors from backing the very industries the government wants to advance.”
The Treasurer declined to comment on the mooted changes.
ASIC chair Joe Longo is pushing for change, saying the wholesale test is “very much on our radar”.
“The current test hasn’t changed in nearly 20 years. And so we now have a rather large number of people who are deemed to be sophisticated, and because the test hasn’t been revised, there’s a much larger group of people who are deemed to be in this group that I think may very well not be, shouldn’t be.”
Financial Services Council chief Blake Briggs has also said the wholesale investor test “no longer reflects contemporary market realities and creates risks for less sophisticated investors”.
The proposed changes became the subject of a review by the parliamentary joint committee on corporations and financial services chaired by Labor senator Deborah O’Neill. Earlier this year the committee handed down their report, concluding there was no case for change.
Some renewable experts such as clean technology investor Mark Bonnar said people with such high incomes and assets were arguably more careful with their money than institutional investors and that there need not be any changes.
“I wouldn’t support the changes. It would just make it harder for early stage investors who are actually pretty savvy already,” Mr Bonnar said.
Australian Investment Council chief executive Navleen Prassad said new thresholds would disadvantage investors.
“Increasing the sophisticated investor test would place considerable pressure on access to capital,” she said, “particularly for small and emerging private equity and venture capital fund managers who invest in start-ups and growth companies.
“Assessing financial literacy or adding education and skills requirements would be the obvious response, rather than adjusting the thresholds.”
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