Uncertainty around the implementation of the third part of the Federal Government’s Investment Management Regime (IMR) legislation is creating a lack of clarity for the operations of global hedge funds in Australia, according to Ernst & Young’s Antoinette Elias.
Speaking to I&T News after the release of a global survey of 100 hedge fund managers, Elias, who is Ernst & Young’s Oceania asset management leader, said the industry was still waiting for details of the IMR Element 3 rules, which will define which global funds can be exempt from Australian tax.
|Antoinette Elias, Oceania asset management leader, Ernst & Young|
The IMR proposals came out of the 2009 Johnson Report on the funds management industry, and seek to address tax issues which hinder Australia’s development as a global centre for the funds management industry.
The first two elements of the IMR legislative package were passed by the Senate in September, and dealt with issues such as “conduit” income where foreign income is paid to foreign owners through Australian-domiciled entities.
The IMR 3 legislation will introduce a tax exemption on Australian sourced gains for funds which qualify as IMR funds, but as yet no draft legislation has been presented.
“There would seem to be a lot of conditions funds will have to meet to fulfill all the criteria of IMR 3,” Elias said.
“So there is a risk that some funds won’t meet these conditions, because I suspect that the devil will be in the detail and we still don’t know what that will be.”
Meanwhile the E&Y survey compared the opinions of 100 hedge fund managers who together manage more than US$710 billion, and 50 institutional investors with more than US$190 allocated to hedge funds.
The survey found that despite increasing regulatory requirements for hedge funds, only 10 per cent of investors felt the regulations protected their interests and 85 per cent did not believe they would prevent the next financial crisis.
The survey also found a disparity in views on operational risk, with 56 per cent of the institutional investors citing it as a “common driver of redemption,” compared with just 10 per cent of the fund managers.
“Managers overwhelmingly cite performance as the primary reason for redemptions (86 per cent), and while investors also see this as important they are equally inclined to take their assets elsewhere when there are changeovers in personnel,” said Jon Pye, E&Y’s Oceania hedge fund leader.
Pye told E&Y’s annual Hedge Fund Symposium in Sydney that the next 12 months would be a challenging period for hedge funds, with pressure coming from increased regulation, a saturation of funds and strategies, and continuing turbulence in financial markets.