Private Equity Funds in Australia

Recent years have seen the Australian government take steps aimed at encouraging establishment of PEFs in Australia.  As a result, the country’s PEF landscape has undergone major transformations, and particularly after the introduction of VCLP, ESVCLP, MIT & AMIT regimes.  

Traditionally, PEFs are created in the form of managed investment schemes representing mutual trusts. Under a collective investment scheme, investors combine their finances & make joint investments. Such schemes work as follows:

• by investing their money, investors become entitled to benefits received under the scheme
• to derive financial or other benefits resulting from the scheme, all investments should be combined;
• investors have no control over the functioning of the scheme.

Establishing Trusts in the Commonwealth of Australia

The most popular type of managed investment scheme in the Commonwealth of Australia is unit trusts. Setting up a mutual investment fund in Australia envisages participation of 2 key stakeholders - the trustee & unitholder. Mutual funds managed by trustees, managers or both represent contractual relationships entered into between trustees & unitholders in accordance with a trust agreement.

As a rule, trustees have a right to dispose of trusts’ assets pursuant to the trust agreement’s terms. Investors have a right to own a trust’s shares & property. Usually, investors prefer to register a private company in Australia for these purposes.

Unit trusts don’t have an independent legal status & are considered a legal relationship between trustees & beneficiaries.

If an LLP is part of the fund, then entrepreneurs are classified as passive investors or they make a commitment to invest in the fund. PEFs act in as general partners, fund managers, or both, making & managing investments in businesses by using the funds’ money. However, LLPs are liable to taxation as companies, which makes them less attractive as investment vehicles.

Being the country’s main financial regulator, the ASIC has the authority to manage PEFs in Australia. If a PEF isn’t registered under managed investment scheme, or the requirement to obtain a financial services license in Australia isn’t applicable to it, then its managers aren’t required to appoint local custodians or administrators. In contrast, operators of registered managed investment schemes & AFSL licensees are required to have custodians or administrators.

There aren’t any requirements for PEF managers in the Commonwealth of Australia. However, they are required to abide by certain requirements (i.e. to be a resident of Australia) to gain access to preferential taxation. 

If a fund is operated by an LLC registered pursuant to the Corporations Act, it must meet the following minimum requirements:

• have a director residing in Australia;
• have a secretary;
• have an office registered in the Commonwealth of Australia.

If a fund is represented by a foreign company, it must submit a registration application to the ASIC & appoint a local agent that will be representing it in the Commonwealth of Australia.

Conclusion

Setting up a private equity fund in Australia requires determining its legal status. In all cases, the standard registration procedure must be followed.