Market watchdog the Financial Markets Authority is unconcerned that property syndication firms are starting to use available legal exemptions to avoid issuing prospectuses when raising funds.
Late last year the FMA removed an exemption that had existed for property syndicators whereby they could raise money from investors for proportionate ownership schemes by the issuing of an information memorandum, which had a lower level of disclosure than a prospectus.
Some of the larger syndicators opposed the move on the grounds that it would increase their costs of raising funds as well as ongoing costs and might make some smaller syndications uneconomic.
Following something of a lull in syndication activity after the exemption came off, Oyster Group, one of the larger operators of proportionate ownership schemes was first off the rank earlier this year with a full offer using a prospectus. Other large syndicators KCL Property and Augusta Funds Management followed.
See here for our list of property syndications.
However, more recently both Oyster and Augusta have launched syndication offers without a full prospectus, using an exemption in the Securities Act for "eligible investors" - people who can either prove they are high net worth individuals or are investing NZ$500,000 or more.
A spokesman for the FMA said property syndicators had historically offered investments to "a mix of retail and wholesale investors".
"Since FMA’s decision to discontinue the exemption we have continued to see a mix of offers to retail and wholesale investors. Oyster, KCL, and Augusta have all extended offers to retail investors in accordance with the standard Securities Act requirements (eg use of a registered prospectus and investment statement, and appointment of a licensed statutory supervisor)."
The spokesman said that in any case where regulatory requirements imposed costs, market participants would look at ways to structure their business to minimise those costs.
"This could include offering only to people who are not members of the public or are otherwise excluded from the coverage of the Securities Act– these would include ‘eligible investors’.
"This is appropriate and does not cause us concern unless we see that investors have not been properly classified in this way. While our monitoring activity has not yet identified any major issues, investors who have concerns should contact FMA."
Exclusions from the coverage of securities laws are under review as part of the Financial Markets Conduct Bill currently before Parliament.
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However, more recently both Oyster and Augusta have launched syndication offers without a full prospectus, using an exemption in the Securities Act for "eligible investors" - people who can either prove they are high net worth individuals or are investing NZ$500,000 or more.
HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables. Read more
Cripes, Australia can only rustle up around 200 eligible HNWIs according to the detailed 2013 World Wealth Report.
But if NZD 500,000 seems like an investable USD 1,000,000 to the FMA what can one add?
No worries. HNWIs can be just as stupid at managing their money as the rest of us.
Even as the definition given above, I personally am not too far away from that level and I often feel quite poor because the income generated is from conservative cash and shares. No dabbling in finance companies. No rental property here either!
Oh, I forgot our magnificent National Super.
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