ASX quoted managed funds: A new way to access the retail market
Fund managers now have a cost-effective way to access the booming ASX retail investor market by quoting their unlisted managed funds on the exchange, that is, converting to “Quoted Funds”.
This new distribution channel comes as trading volumes continue to surge, despite the uncertainty caused by the coronavirus pandemic.
Surging demand for listed investments
About 900,000 Australians say they plan to buy listed investments for the first time over the next 12 months, according to the latest ASX Australian Investor Study
despite an environment of heightened volatility. Meanwhile, listed investments attracted significantly more inflows than unlisted managed funds between March and May 2020.
A key reason behind the popularity of listed investments is low-cost online brokers, which allow investors to trade quickly at a set price.
While unlisted managed funds also offer many benefits, they require time-consuming paperwork which can take days to process, leaving investors exposed to the risk of unit price fluctuations before the transaction is completed.
Quoted funds combine the best of both worlds: an open-ended managed fund that’s simple to trade on the ASX. They allow investors to trade on market with known trading prices or off market using NAV based prices.
Cost savings for fund managers and investors
Managers wanting to access the listed retail market through traditional structures have faced significant costs.
Dedicated listed vehicles such as exchange-traded funds or listed investment companies attract large legal and listing fees. Raising capital is now harder, following new laws banning sales commissions to advisers and brokers.
The ASX's mFund settlement service, launched in 2014, gave fund managers the opportunity to quasi-list their managed funds on the exchange. However, it also came with its own set of listing costs while inflows were held back when major online brokers chose not to connect to the service.
Quoted funds are a lower cost option for fund managers than launching an entirely new listed vehicle and, unlike the mFund service, units can be traded through any online broker.
Investors get faster trades and more transparency
Investors choosing to buy or sell units in a quoted fund benefit from more transparent pricing.
Quoted funds must meet the ASX AQUA Rules, including updating prices at least every 15 seconds throughout the day. This liquidity means investors know the exact price when they trade, compared to potentially waiting days while waiting for paper applications to be processed. Quoted fund trades are settled within two days just like other listed securities.
Investors with an online broking account have already completed rigorous documentation requirements such as ID verification and anti-money laundering forms. Errors are reduced as administrators no longer have to process paperwork and manually enter data.
Quoted funds are the next evolution of managed funds, bringing greater value, convenience and transparency to managers and their clients.
Equity Trustees can help you launch your unlisted managed fund on the ASX as a quoted fund. Please email us and we’ll be in touch.