ASIC has issued an interim stop order on Storehouse Residential Trust, a managed fund promoted by K2 Asset Management.

The stop order restricts K2 from issuing interests in the fund, providing product disclosure statements, or offering financial advice to retail clients for this fund.

The action follows concerns about the fund’s Target Market Determination.

The concerns include:

  • A mismatch between the investment risk profiles of the Storehouse Residential Trust (very high-risk) and risk profiles identified for investors within, or potentially within, the target markets (high and medium);
  • The target market includes investors who intend to hold the funds as a core component (25–75 per cent);
  • The trust has very low portfolio diversification and is very high risk;
  • Consumers with an investment objective of capital preservation or income generation are potentially in the target market, where capital loss is a material risk and income distributions may not occur regularly;
  • Consumers with an investment timeframe of less than two years are potentially in the target market, where the suggested investment timeframe of the fund is at least five years; and
  • The target market includes investors with a need to withdraw money annually when there are restrictions on withdrawals as the Storehouse Residential Trust is illiquid and underlying assets are aligned with periods of three to five years. There is no commitment to provide redemptions and withdrawals depending on the trust’s liquidity.

Storehouse Residential Trust held $22.5 million in assets as of 30 June 2022.

ASIC is actively monitoring compliance with DDO and may issue a final order if concerns aren’t addressed.

 K2 has an opportunity to submit responses.

Under DDO, financial product issuers must define target markets for each of their products appropriately, with sufficient granularity, having close regard to the risks and features of the relevant product. 

Issuers also need to consider how their product will be distributed and have appropriate conditions in place to ensure the product is directed to the target market.

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