ASIC has placed an interim stop order on Vasco Responsible Entity Services, stopping it from offering or distributing the Pivotal Diversified Fund to retail investors.

In a media release on Monday morning, the regulator is concerned that Vasco has not appropriately considered the features and risks of the Pivotal Diversified Fund in determining the target market.

ASIC believed the target market inappropriately includes investors:

  • With a potentially high risk and return profile, when the risks associated with the fund’s investments are very high; and
  • With a ‘medium’ investment timeframe (up to six years).

ASIC was concerned that Vasco did not appropriately consider the below features and risks in determining the target market for the fund:

  • Investments in various managed funds, including hedge funds, a fund invested in residential and commercial real estate developments and a private equity fund;
  • Underlying investments in the hedge funds are exposed to a very high-risk strategy that generates absolute returns by trading in listed equities and by using short selling, leverage and derivatives; and
  • The managed fund investing in property development projects is subject to project financing, valuation and construction risks, and the private equity fund is illiquid and leveraged.

The  target market determination (TMD) also did not include any distribution conditions. It, therefore, did not meet the design and distribution obligations requirements.

ASIC expects Vasco to consider the concerns raised regarding the TMD and take immediate steps to ensure compliance, and will consider making a final order if the concerns are not addressed promptly. 

The order is valid for 21 days unless revoked earlier. Vasco will have an opportunity to make submissions before a decision is made about a final stop order.

To date, ASIC has issued 22 interim stop orders under the DDO regime.

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