• Conflicts of interest are becoming more pronounced.
• Traditional compliance approaches may no longer be sufficient.
• This guide provides insights from three fund establishment expert firms. 
• Download a PDF version of this article here

Establishing a Managed Investment Scheme in Australia now demands a heightened focus on governance, transparency and independence— above and beyond the actual investment capability of a fund manager. The heightened expectations have been reinforced by ASIC’s recent discussion paper on Australia’s evolving capital markets.

ASIC’s paper signals a clear regulatory shift: as private markets such as private equity, private credit and unlisted funds grow rapidly, the risks associated with illiquidity, opacity and conflicts of interest are becoming more pronounced. These risks, particularly related‑party transactions, fee structures and valuation practices, have been identified as significant drivers of potential market inefficiencies and investor detriment, prompting ASIC to underscore the need for more robust conflict‑management and governance frameworks for all market participants, including new fund operators.

This finding has direct implications for any fund manager setting up a Managed Investment Scheme. The changing regulatory landscape means that traditional compliance is no longer sufficient. ASIC’s insights highlight that fund managers often hold informational advantages in private market settings, making independent oversight and clearly defined governance structures essential to safeguarding investor interests. The discussion paper therefore acts as both a warning and a roadmap: those establishing a managed fund (a common form of Managed Investment Scheme) must adopt stronger governance systems from the outset, ensuring not only regulatory alignment but also the trust and confidence of their investors.

This article explores the key steps to setting up a managed fund in Australia—framed by ASIC’s renewed focus on independence and responsible stewardship.

Managed investment schemes – opportunities for investment

Managed investment schemes are an excellent opportunity to raise capital investment for a range of development or investment assets and strategies. Operating a managed investment scheme allows you to provide a range of investment options to your investors, including allowing you to provide varied redemption options and returns to your investors.

This article is targeted at people intending to raise money from wholesale investors, being people who:

1. invest $500,000 or more;
2. are certified by a qualified accountant:

•  have over $2.5 million in net assets; or
• gross income of $250,000 per annum over the previous two years

Setting up a scheme – what’s required?

A managed investment scheme is structured as a unit trust, with the following stakeholders:

• a trustee such as The SILC Group (SILC) that holds the assets, (alternatively outsourced to a custodian)
• the investment manager who conducts the day to-day investment activities of the scheme
• the fund administrator which attends to the day-to-day administration activities of the scheme
• the investors who hold units in the unit trust

The trustee will need to hold an Australian financial services licence (AFSL) in order to issue the units in the managed investment scheme and to hold the assets of the managed investment scheme.

SILC holds an AFSL which allows it to act as an independent trustee of managed investment schemes. SILC has extensive experience in acting as independent trustee for a variety of managed investment schemes which invest in a wide range of underlying asset classes, including but not limited to:

• property developments
• established properties
• listed securities
• infrastructure
• private equity
• venture capital
• secured and unsecured credit/debt

The investment manager will also need to be authorised under an appropriate AFSL in order to undertake the actual investment activities. SILC also provides corporate authorised representative services, and is able to authorise investment managers under its own AFSL. When it does so, SILC will ‘white label’ the product, allowing you to use your own branding and trademarks to promote the scheme or fund. SILC also provides end-to-end fund administration functions including managing the fund’s trust bank accounts, fund accounting, client and investor reporting, unit pricing and registry services. SILC’s experience and wide range of expertise makes it well suited to act as trustee and fund administrator for an investment manager seeking to establish wholesale managed investment schemes.

The documents

In order to offer a managed investment scheme to investors, several documents need to be prepared.

Firstly, the investment manager will need to be authorised under the trustee’s AFSL, with a ‘corporate authorised representative agreement’. This document sets out the terms and obligations which allow the investment manager to legally undertake the investment management activities for the fund. There will also need to be Individual Authorisations, typically included in the Corporate Authorised Representative (CAR) Agreement.

Once these arrangements have been put in place, the preparation of documents for the establishment of the underlying trust structure can begin.

The documents required include the trust deed, which governs the overall operation of the managed investment scheme and which sets out the rights and obligations of the trustee in managing the scheme.

The trustee and the investment manager will need to enter into an investment management agreement, which authorises the investment manager to invest in the underlying assets on behalf of the trustee for the managed investment scheme.

Finally, the offer document must be prepared, known as an ‘information memorandum’ which sets out the risks, advantages and structure of the scheme, including what the scheme will be investing into.

Generally the offer documentation also sets out any unique features of the product, such as multiple classes, limited investment options, the liquidity and whether units can be traded on a secondary market.

Hall & Wilcox has particular experience with the establishment and structuring of managed investment schemes, including the preparation and review of disclosure documentation such as the information memorandum. Hall & Wilcox also has experience in reviewing and preparing corporate authorised representative agreements and investment management agreements.

The financial services team at Hall & Wilcox have also worked on a range of managed investment schemes which invest in a wide variety of underlying assets, including property, debt, equity, securities and crypto-assets.

Once all of the documentation has been finalised, the information memorandum can be issued, and applications taken.

The application form collects information from the investor required for tax compliance, anti-money laundering and counter-terrorism financing law purposes.

On receipt of a completed application form and investment money, the trustee can then proceed to issue units to the investor.

Hall & Wilcox’s varied experience in this area means that we are well placed to assist any investment managers seeking to establish managed investment schemes investing into a range of underlying assets.

Managed investment schemes and taxation

As a managed investment scheme is a unit trust, it will be treated as “flow through” entity for Australian income tax purposes. That is, the taxable income of the trust will be subject to Australian tax in the hands of Investors, not the trust on the basis that:

• The Investors are made “presently entitled” to all of the income of the trust at the end of each income year; and
• The activities of the trust are limited to “eligible investment businesses” such that the trust should not constitute a public trading trust. Broadly eligible investment businesses includes investments in loans, long term investment in real estate for rental income and non-controlling interests in companies and unit trusts. The tax treatment for managed investment schemes varies widely depending on whether the trust invests in debt, real estate or shares / units.

For example:

• For real estate investments, tax-deferred distributions may occur where the trust distributes an amount of cash that exceeds the taxable income allocated to an investor. A tax-deferred distribution may occur for example where the trust has greater cash / accounting income than taxable income due to non cash deductions such as depreciation on building and plant and equipment. Tax deferred distributions provides a tax timing benefit to investors but also results in a reduction in the cost base of the units held by the investor.
• For investments into debt / loans, returns of interest income may be subject to a final 10% interest withholding tax rate for overseas investors. This low level of withholding tax is aimed to attract funds from overseas to invest into Australia;
• If the trust is able to qualify as a Withholding Managed Investment Trust (MIT) (for example because it is widely held, is managed by a local investment manager and governed by an AFSL holder), this may result in 15% final MIT withholding tax for non residents in eligible countries. HLB Mann Judd has significant expertise to assist with tax advisory, set up and ongoing compliance for a wide range of managed investment schemes including debt, real estate and private equity funds. This includes review of Trust Deeds for tax compliance, provision of tax comments in the Information Memorandum and assisting review the structure of the fund for MIT status.