Significant Investor Visas and Premium Investor Visas: New Complying Investment Framework
On 15 May 2015, the Government of Australia released details of the new complying investment framework (CIF) for applicants under the Significant Investor Visa (SIV) programme together with some information on a new Premium Investor Visa (PIV) programme. The changes are to come into effect from 1 July 2015 and were designed to “encourage investment into innovative Australian ideas and emerging companies”. Austrade will become a nominator for the SIV, alongside State and Territory Governments.
Under the new CIF, SIV applicants will be required to invest at least $5 million over four years in “complying investments”. These investments must include each of the following:
- At least $500,000* in eligible Australian venture capital or growth private equity fund(s) investing in start-up and small private companies (VCPE); * The $500,000 amount is expected to increase within 2 years.
- At least $1.5 million in one or more “eligible managed funds” that invest in emerging companies listed on the ASX (Eligible Managed Funds); and
- A “balancing investment” of up to $3 million in one or more managed funds or listed investment companies that invest in a combination of eligible assets that include other ASX listed companies, eligible corporate bonds or notes, annuities and real property, subject to a 10 per cent limit on residential real estate (Balancing Investment).
This note provides more details about each of these three categories of investments and raises questions in a few areas where the new rules are not entirely clear.
Austrade and the Department of Immigration and Border Protection have indicated that they will continue to consult and explain the new CIF ahead of the 1 July 2015 commencement date.
This part of the CIF requires an SIV applicant or holder to provide proof that each of the following is satisfied:
- A minimum amount of $500,000 investment money is provided upfront. It may be deposited in a Cash Management Trust (CMT) held in escrow or deposited in an Australian bank account as security for a bank guarantee in favour of a VCPE to meet capital calls by the VCPE over the VCPE’s investment timeframe.
- The applicant has entered into a commitment with one or more VCPE funds within 12 months from the grant of the provisional visa. Note that this proof need only be provided within the 12 month period from the date that the visa was granted. Presumably, the SIV applicant will have, at least, identified one or more VCPEs before it will be nominated for an SIV.
- The investments in the VCPE funds have commenced within 4 years from the grant of the visa. As a result, SIV applicants will only want to invest in a VCPE that is to invest the proceeds within 4 years from the date of subscription in the VCPE.
The investment return timeframe of the VCPE may be less than or greater than the 4 year visa period. If an SIV holder receives proceeds from the realisation of a VCPE fund investment before the SIV holder’s visa expires, these proceeds must be reinvested in one or more VCPEs, Eligible Managed Funds or Balancing Investments.
Eligible Managed Fund
A minimum of $1.5 million must also be invested in one or more Eligible Managed Funds. An “Eligible Managed Fund” is an open or close-end managed fund, or listed investment company, that satisfies the following:
- The Fund invests in securities of ASX listed companies that have a market capitalisation of less than $500m (measured at the time of first purchase by the fund). Securities in Australian unlisted companies may also be held, provided they do not exceed 20% of the fund’s net assets. The fund may also hold up to 20% of its net assets in other Australian exchange listed companies.
- Up to 10% of the fund’s net assets may be invested in foreign exchanged listed companies that have a market capitalisation of less than $500million (measured at the time of first purchase by the fund).
- Up to 30% of the fund’s net assets can be securities in previously held companies that have grown their market capitalisation above $500m since the time of investment.
- Within three months from the fund commencing to operate, it must hold assets in a minimum of 20 companies.
- Once a particular asset reaches 10% of the fund’s net assets, no further purchase of that asset can be made. It is unclear whether this rule means that the prohibition against further acquisition applies, even if an asset that accounts for 10% of the fund’s net assets at one time, drops below the 10% threshold.
- No more than 20% of the fund’s net assets can be held in cash (ie cash held by Australian authorised deposit taking institutions (including certificates of deposit, bank bills and other cash-like instruments)).
- Derivatives may only be used for risk management purposes.
The manager of the Eligible Managed Fund must also maintain funds under management of at least $100 million (including those assets managed outside of the Eligible Managed Funds). This requirement does not apply to managers of VCPE funds.
“Balancing Investments” account for the remainder of the $5 million that is not invested in a VCPE investment or an Eligible Managed Fund and that are invested in in any of the following:
- interests in companies, A-REITs and infrastructure trusts, including their ordinary equity, preferred equity, convertible bonds or corporate issued floating rate notes listed on an Australian securities exchange;
- corporate bonds or notes issued by an Australian exchange listed entity (or wholly owned subsidiary of the Australian listed entity) or investment grade rated Australian corporate bonds or notes rated by an AFS licensed debt rating agency;
- deferred annuities issued by an Australian registered life company, provided the annuities cannot commence paybacks during the visa period;
- real property in Australia (subject to 10% limit on residential real estate);
- a fund that has no more than 20% of its net assets held in cash; that only uses derivatives for risk management purposes; and that is managed by a manager that has and maintains at least $100 million FUM.
Current SIV investment guidelines
Current SIV holders will not be affected by the new requirements. They must continue to comply with the previous investment requirements which required holdings of largely passive investments, such as government bonds and funds that invest in residential real estate.