All investments carry some level of risk that may result in financial loss. Section 5 of the Fund’s [Product Disclosure Statement] outlines the main identified risks, which include:
General investment risk
The value of an investment in the Fund may fall for a number of reasons, including the risks set out in this PDS, which means that Investors may receive less than their original investment when they redeem or transfer their units, or may otherwise not achieve their targeted yield or desired overall return from their investment.
Market and economic risk
The investment returns of the Fund and the asset portfolio that it expects to acquire will be exposed to general economic conditions (including interest rates, unemployment, inflation, and economic growth), market conditions and government policy risks. In addition, certain events may negatively impact the value of assets held in the Fund’s portfolio. These may include (but are not limited to) changes in legal, tax, social, technology or political conditions, laws as well as general market sentiment. There is also a risk of industry specific shocks relevant to underlying assets and general market disruptions.
There is a risk that inadequacies with systems and procedures or the people operating them could lead to a problem with the Fund’s or the Responsible Entity’s operation and result in a decrease in the value of units or may otherwise disadvantage the Fund.
Legal and regulatory risk
The Fund’s investments are subject to a range of regulatory controls imposed by government (federal, state and territory) and regulatory authorities (for example, ASIC). The relevant regulatory regimes are complex and are subject to change over time depending on changes in the laws and the policies of the governments and regulatory authorities.
The Fund is exposed to the risk of changes to the applicable laws and/or the interpretation of existing laws or the risks associated with non-compliance with these laws (including reporting or other legal obligations), all of which may have a negative effect on the Fund, its investments and/or returns to Investors. In addition, differences between rules in domestic and foreign markets, including those relating to taxation, accounting, investments, etc. may adversely impact your investment.
The Responsible Entity is not aware of any circumstances which might give rise to the cancellation or suspension of any of the approvals or licences required to operate the Fund. If any of the approvals or licences are cancelled or suspended the Fund may be adversely affected.
Accounting policy risk
Changes to accounting policies may have a detrimental impact to the Fund’s unit price.
Tax laws & policies
Tax laws are subject to change and reform which may affect the Fund’s performance and/or returns achieved by Investors.
There may be tax implications for Investors arising from investing in units, the receipt of distributions and returns of capital from the Fund, and on any disposal of units. Taxation consequences of any investment in the Fund will depend on the Unitholder’s circumstances and it is the responsibility of the Unitholder to make their own enquiries and obtain advice from an accountant or other professional tax advisor concerning the taxation consequences of an investment in the Fund. The Responsible Entity and the Fund are not responsible for either taxation or penalties incurred by Investors.
From time to time, the Responsible Entity may be involved in litigation. This litigation may include, but is not limited to, contractual claims with service providers or asset managers. If a claim is pursued against the Responsible Entity, the litigation may adversely impact on the profits and financial performance of the Fund. Any claim, whether successful or not, may adversely impact the Fund’s unit price and/or the return on an Investor’s investment.
Counterparty risk is the risk that a counterparty, such as a custodian, will not be able to meet its contractual obligations.
The investment strategy and the Responsible Entity rely on the performance of contracts with external parties, including service providers. There is a risk that these counterparties may not meet their responsibilities, including as a result of insolvency, loss of key personnel, financial distress or liquidation of the counterparty, which may expose the Fund to the risk of loss. In the case of a default, the Fund could also become subject to adverse market movements while replacement counterparties are sourced and agreements with them executed.
The ability of the Fund to transact business with one or more counterparties, the lack of any independent evaluation of such counterparties’ financial capabilities and the absence of an established secondary market to facilitate settlement of certain assets may increase the potential for losses.
From time-to-time Australia and the global economy may be impacted by disease or pandemics including the global emergency and pandemic with respect to a strain of the coronavirus which is the cause of the COVID-19 virus (“Virus”). Such pandemics may and have caused travel between most countries, states and territories to be disrupted.
The continued spread of, or inability to combat, the Virus or any future pandemic may have significant adverse impact to economies, which may impact the Fund and its Investors.
The future of any economic impact caused directly or indirectly by the Virus or other pandemics is uncertain and may affect the ability of the Fund to invest or to exit its investments. Accordingly, the Fund’s returns and its ability to pay redemptions may be negatively impacted by the spread or the inability to definitively combat the Virus.
There is a risk of fraud, data loss, business disruption or damage to the information of the Fund or to Investors’ personal information as a result of a threat or failure to protect such information or data.
Cyber risk is an increasing threat to Unitholder’s personal information stored on our systems, and on our supplier systems, and technologies we use to process and report on the Fund’s performance. A single successful cyber attack may involve data theft which disrupts the technologies and systems or ransom for the return of critical information. The Responsible Entity as part of its Risk Management Framework continues to develop systems, technologies, processes, and controls that are designed to protect systems, networks and data from any possible cyber threats.
Managed (Pooled Investment) Risks
Income distribution risk
The Fund’s ability to pay a distribution of income is contingent on the amount of income it receives from its investments. No guarantee can be given concerning the future earnings of the Fund’s asset portfolio, including the ability to generate regular and reliable income from the portfolio. The Responsible Entity may make poor investment decisions which may result in the Fund’s returns being inadequate to pay income distributions
Redemption (Liquidity) risk
There is a risk the Fund will not have sufficient liquid assets to offer Investors the opportunity to redeem their units as and when they wish to. There is also a risk that if a redemption offer is made, the Fund will be unable to meet redemption requests in a timely manner or that redemption requests are required to be scaled back.
In the event the Fund is wound up and required to dispose of assets to pay redemptions, there is a risk that the Fund may not be able to realise sufficient assets in a timely manner or at an optimal sale price. This may affect the Responsible Entity’s ability to return capital to Investors.
Potential Investors should be aware that although they have the right to transfer their units, this right is subject to the Responsible Entity being satisfied that the transfer meets all required application criteria and will not affect the taxation status of the Fund. Further, there is presently no secondary market for investors to sell their units.
There is a risk an Investor may want to transfer their units but is unable to do so because a suitable purchaser cannot be found, or that the entity selected fails to meet the application requirements or is otherwise rejected by the Responsible Entity. The Responsible Entity reserves the right to refuse to agree to an Investor’s request to transfer their units. See Section 6.14 of the Fund’s PDS for more information about unit transfers.
Responsible Entity (Manager) risk
The success and profitability of the Fund’s asset portfolio, and therefore the Fund, will depend in large part upon the performance of the Responsible Entity as the manager of the Fund, which is dependent on the skill and expertise of the Responsible Entity’s key personnel. The Responsible Entity and its key personnel may not manage the Fund’s asset portfolio in a manner that consistently achieves the Fund’s investment objective over time.
If the Responsible Entity loses the services of key personnel or important investment advisors, or is otherwise precluded from providing its management services (for example, by virtue of the loss of its respective licenses or registrations), the success and profitability of the Fund’s asset portfolio could be materially and adversely affected. There can be no assurances that the investment team will remain wholly intact or that the Responsible Entity will itself maintain key licences and registrations throughout the term of the Fund.
If the Responsible Entity ceases to manage the Fund, another responsible entity will need to be engaged with the appropriate skill and experience to administer the Fund, or if a replacement responsible entity cannot be found, the Fund would need to be wound up. This may affect the Fund’s success, performance, and longevity.
Minimum subscription risk
There is a risk that the minimum subscription is not met, in which case capital will be returned to Investors, with pro rata interest as outlined in Section 6 – About the offer.
Asset Acquisition & Disposal Risks
Blind pool risk
Investors are investing in a ‘blind pool’ of assets when they invest in the Fund. The common risk associated with investing in a blind pool fund includes (but is not limited to): an inability for the Investors to undertake their own due diligence on Fund investments; a delay in securing investments; that the Fund may not achieve its target returns, or deployment of capital by the Fund can fall
short of the target amount.
Portfolio & management risk
The Responsible Entity’s investment strategy includes inherent risks. These include, but are not limited to, the ability of the Responsible Entity to source, acquire, maintain, and dispose of a diverse asset portfolio that achieves the Fund’s investment objective, and which is consistent with the investment strategy and investment guidelines set out in this PDS and as permitted under the law. For example, there could be a period of time when the Fund is overexposed to particular assets or asset classes and Investors may be subjected to a greater level of risk while the Fund rebalances its portfolio.
While the Responsible Entity will attempt to mitigate these risks, there can be no assurance that the investment strategy will be managed successfully or that the Fund will meet its investment objectives. Failure to do so could negatively impact the Fund’s performance.
The Fund’s ability to dispose of its assets at or above their independently appraised values, and within the expected timeframe, will depend on market conditions at the time of disposal.
As such there is a risk that the Fund’s assets will not be able to be sold in a timeframe and/or at values expressed in the Fund’s financial statements.
Assets owned by the Fund will be periodically valued in accordance with its valuation policy. However, there is a risk that a valuation is not accurate which may adversely impact the Fund’s performance. If an inaccurate valuation is obtained and relied upon, an asset could be acquired for more than market value, or alternately could be sold for less than market value.
In some instances the Responsible Entity may decide to purchase an asset for more than its independently appraised price at the time of acquisition, provided the potential returns of doing so outweigh the Responsible Entity’s assessment of the risks, including the risk that the asset may not be able to be immediately resold for its acquisition price.
In respect to direct property acquired, an independent valuation of each property is expected to be commissioned prior to purchase however, this valuation or appraisal might still be an inaccurate assessment of the true valuation upon realisation for a variety of reasons including wrong information used, poor research and changes in property values. There is no guarantee that a property will make a capital gain on resale, and the value of the property may fall as a result of the assumptions upon which the valuation was based proving to be incorrect.
Due diligence risk
The Responsible Entity will seek to carry out pre- purchase due diligence on all investments. However, there is a risk that the Responsible Entity may not identify all the risks or that services provided by third parties (e.g. independent valuers, legal counsel, etc.) will be inadequate.
Direct Property Related Risk
General property risks
As the Fund expects to own direct property, Investors will be exposed to certain risks associated with the ownership of property and the property industry generally. These risks include:
- Declines in property values due to market conditions;
- Declines in property income due to rental market conditions (which will vary according to the supply and demand for similar space in the respective markets for the property);
- Inability to secure tenants as required to provide rental income and other tenancy risks; and
- Increases in property and transaction taxes.
The Fund’s income (and therefore the ability of the Fund to provide regular distributions to Investors) will be affected by tenants paying rent in accordance with their lease terms. In relation to the Fund’s properties, there is a risk that:
- The properties remain and/or become vacant;
- Tenants may damage property requiring increased capital expenditure (that is unforeseen);
- The Fund is not able to lease and/or re-lease a property; and/or
- A property is re-leased at a reduced rate.
Each scenario could result in a reduction of the Fund’s rental income, and additional expenses associated with re-leasing or selling the property.
The Fund’s performance may be adversely affected where losses are incurred due to uninsurable risks, uninsured risks or under-insured risks. Further, any failure by an insurer or re-insurer may adversely affect the Fund’s ability to make claims under an insurance policy. Disasters such as natural phenomena, acts of God and terrorist attacks may damage or destroy a property owned by the Fund.
It may not be cost-effective or possible to insure property owned by the Fund against some of these events. Occurrence of these events could also lead to insurance becoming unavailable for such events in the future, or premiums increasing above expected levels.
Capital expenditure risk
The risk that capital expenditure could result in over- capitalisation leading to a write-down in the property’s value when compared to its appraised market value.
Borrowing & refinancing risk
The Fund may borrow up to 60% of the current market value of any direct property acquired, while also potentially acquiring units in leveraged listed and unlisted managed funds.
Such borrowings enhance the potential for increases in distributions and capital gains for Investors, but also increase the potential for reductions in distributions or capital losses in the event that an asset’s income falls, or its value depreciates.
If the borrowings are refinanced, the new interest rate may be higher than that applying to the current borrowings. Increases in variable market interest rates (after any period of fixed interest rate expires) may increase interest costs which may result in a reduction in distributions paid to Investors. There is also a risk that the Fund may not be able to refinance borrowings when they mature and will need to sell assets to repay those borrowings. This could result in a reduction of the Fund’s income, incurring expenses associated with selling assets and, if the sales occur during a period where asset values are depressed, a reduction in the value of the Fund’s unit price.
Compulsory acquisition risk
The risk that a property (or part of a property) owned by the Fund may be compulsorily acquired by a government authority.
Timeframe For Investments
Investors may find their returns are diminished by the impact of the contribution fee, and because the unit redemption price is expected to be lower than the unit issue price, because purchase transaction costs are included in the unit issue price, and estimated sale transaction costs included in the unit redemption price.