AUSTRALIA Law and Practice Contributed by: Michael Lawson, Nicole Brown, Lizzie White and Tamaryn Leach, MinterEllison
by ASIC include regulatory guides, information sheets and media releases. Meetings between industry participants and ASIC occur from time to time in various contexts. 2.4 Operational Requirements The key restriction applicable in relation to the operation of an alternative investment fund is licensing. Each entity involved in the fund’s operation must hold or be authorised under a relevant AFSL or subject to or validly rely on an applicable exemption. As previously noted, there are very few limita - tions applying to alternative funds. Significantly, for private equity funds, there are adverse tax implications if a trust were to control a business such that it would be designated a “trading trust”. In such a case, the trust would potentially not be eligible to qualify as a managed invest - ment trust and could be treated like a company (where the trust is widely held). The concept of “control” is currently widely interpreted for Aus - tralian income tax purposes. Provided the fund’s trustee is appropriately authorised under its AFSL, there is no legal requirement for a depository or a custodian to be appointed to hold its fund assets. Specific operational requirements for AFSL hold - ers include the following statutory obligations: • providing financial services efficiently, hon - estly and fairly; • having in place adequate arrangements for the management of conflicts of interest; • complying with the conditions of the entity’s AFSL; • complying with the financial services laws of Australia;
• taking reasonable steps to ensure that their representatives comply with the financial services laws of Australia; • having available adequate resources (includ - ing financial, technological and human resources) to provide the financial services covered by an entity’s AFSL; • maintaining competence to provide financial services; and • ensuring that their representatives are ade - quately trained. ASIC has issued guidance in relation to compli - ance with these obligations, and there are vari - ous practical ways in which AFSL holders may satisfy the obligations. 2.5 Fund Finance The fund finance market in Australia is highly developed. Restrictions on borrowings may arise due to the agreements that the fund equity holders have in place between themselves or as a function of the constituent documents of the fund. In addition, financier-imposed borrowing restrictions and covenants will be relevant. It is common for financiers to take security for finance provided, including mortgages, in rela - tion to property and infrastructure funds. Alternative fund managers often utilise capital call facilities, which are secured by the unpaid capital commitments of the investors to the investment vehicle itself rather than the vehi - cle’s assets. Certain large, institutional-grade investors do not support the use of capital call facilities. There are limited examples of funds raising debt via bond markets, which typically take place offshore.
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