The Risks of Unregulated Investments

There’s been a microscope on wholesale investment opportunities in recent months – and rightfully so.

Without all of the important investment information about an investment offer, and advertising high cash returns with little explanation of risk, in short, is potentially misleading.

Let’s look at the difference between wholesale and retail investment opportunities.


What is a wholesale investment?

According to the Financial Markets Authority (FMA), “wholesale investment offers can promise attractive returns but don’t have the same protections of retail investment offers.”

The FMA specifies wholesale investment offers are opportunities for experienced, eligible investors (individuals or organisations), often with large sums of money to invest, that don’t require the same amount of disclosure a retail offer would. These investors typically must reach monetary or investment experience thresholds to qualify as a wholesale or eligible investor. Eligible investors also have to self-certify that they would qualify as wholesale investors.

Essentially, anyone can offer a wholesale investment opportunity. The information offered about a wholesale investment offer may be limited, where investors do not have all of the relevant information required to make an informed decision to invest. Furthermore, there are no specific disclosure requirements (such as a product disclosure statement), unlike a retail investment. The prospective investor is simply expected to do their own due diligence and to ask the right questions.

PMG currently has only one long-term wholesale commercial property fund, PMG Capital Fund Limited.

What is a retail investment?

A retail investment offer is a “regulated offer” under Financial Markets Conduct Act 2013 (FMCA) and is available to the wider public. To make a regulated offer in a managed investment scheme, the manager of that retail investment scheme must be licensed under the FMCA. PMG, for example, is a licensed managed investment scheme provider.

This means a retail managed investment scheme is regulated and monitored closely by an independent supervisor and the FMA, and must have appropriate governance and processes in place to safeguard investor capital and ensure that the manager is acting in the best interest of the investors in the investment scheme.

Before any offer is made, it also requires that a Product Disclosure Statement (alongside other statutory disclosures) is prepared, which contains prescribed and relevant information to help investors make informed investment decisions. This documentation offers clear and concise information in regard to risk, and features and key characteristics of the investment and the offer.

For PMG, and other retail managed investment scheme managers, that means we must deliver on our promises. If there are complaints against a retail investment offer by a manager, the FMA will look at the disclosures made in the Product Disclosure Statement as part of its investigations.

PMG has four primary funds that are retail commercial property funds: PMG Generation Fund, PMG Direct Office Fund and PMG Direct Childcare Fund which are managed investment schemes and Pacific Property Fund Limited, which issues equity shares in the company. The underlying investment model and methodology are the same.

Wholesale property investments under FMA scrutiny

Outgoing FMA Chief Executive Rob Everett recently spoke with Business Desk, sharing; “Our fear is that it’s a sector, because of New Zealanders’ obsession with property, where a lot of the investors are desperate for yield and [are] not sufficiently aware of the complexities of property investment – not buying a house or a flat, but buying into a complex portfolio or even a single commercial property that has a particular tenancy profile.”

The FMA recently ordered investment company Du Val Group to remove marketing materials that could be seen as misleading or deceiving investors to think investing in their property syndicate was low risk (comparing it favourably to bank term deposits but without a balanced view of the risks) and had “no fees”.

In particular, they were using social media and other online channels potentially appealing to less experienced, retail investors. The FMA states: “An advertisement of an offer only open to wholesale investors is more likely to be misleading, deceptive or confusing when it is run in channels where retail investors are likely to view it, such as Facebook and daily newspapers”.

At PMG, none of our wholesale capital raising activity is undertaken using active marketing or advertising in forums likely to be available to the public – we only approach people with opportunities where we already know they qualify as wholesale or eligible investors based on our experience with them and knowledge of their investing experience.

Additionally, the PMG Board has an obligation to ensure we are meeting the expectations we set for investors and provide the market confidence to invest in PMG. Strong governance from the top provides additional rigour when we make acquisitions and retail offers to our clients, and why PMG evolved to the funds model. We provide commercial property funds that are diversified by geography, property type and tenant sector, which helps deliver income resilience. We, therefore, provide a level of reliability to meet targeted returns for our investors.

The FMA is currently conducting a thematic review on wholesale investor exclusion. PMG is contributing toward the review by proposing solutions to help ensure investors’ bests interests are kept front and centre within both retail and wholesale (unregulated) schemes moving forward. Some of these have included how “eligible investors” certify themselves, the expectations of wholesale issuers (the firms providing the investment opportunity), and the need for risk ratings (much like KiwiSaver) for unregulated offers and also investor appetite. We look forward to seeing how this space changes in the near future to better protect peoples’ hard-earned money capital when investing in unregulated schemes.

PMG’s Licence:

PMG is licensed under the FMCA to manage Managed Investment Schemes (excluding managed funds) which own New Zealand real property and/or invests in New Zealand property funds, listed New Zealand and Australian companies that invest primarily in real property, and Australian listed property trusts.

Meet your investor relationships team

With a range of investment funds to suit New Zealanders of all ages and stages, it's easier than you may think to invest. Give one of our knowledgeable pmg Investor Relationships Managers a call for a no-obligation chat, or visit our FAQ page.

Matt McHardy
Matt McHardy

General Manager Investor Relationships

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Rory Diver
Rory Diver

Investor Relationships Manager – Waikato, Auckland and Northland

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Ben Cant
Ben Cant

Investor Relationships Manager - South Island

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Matt Topham
Matt Topham

Investor Relationships Associate - Tauranga

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Kay Karl
Kay Karl

Investor Relationships Support

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Lorena Zanesco
Lorena Zanesco

Investor Relationships Associate - Tauranga (maternity leave)

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4 steps to investing with pmg

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1. Reach out

To start investing with PMG, register your contact details via phone or email. Alternatively, make an enquiry via our contact form and we’ll have someone from our Investment Relationships Team meet you.

Watch PMG’s history video to learn more about our approach to commercial property investments, along with the five funds within the company. We encourage you to speak with a friend or family member who knows us, and we also recommend you chat with a Financial Advice Provider for specific advice to suit your unique situation.

Look through our current investment offers to find the right PMG fund to suit you. After downloading, carefully review the associated Product Disclosure Statement(s) for the offer(s) you’re interested in. Investing with us is straightforward – either apply online using our secure and confidential investor portal, via the printable form on each fund page, or reach out to your local PMG office to fill out the relevant paperwork.

Our lines of communication are always open. If you have any questions, reach out to your local PMG Investor Relationships Manager. Whether it’s a general catch up or discussion around the latest developments with your investment, we’re here to help.