On 29 June 2015 and 1 July 2015, the Federal Government released new regulations which made changes to the Significant Investor Visa (SIV) regime and introduced the new Premium Investor Visa (PIV) sub-class.
The key changes in the new regulations include:
- the creation of the new PIV sub-class of investor visas which provides access to permanent residency after 12 months and requires the applicant to make a complying investment of $15 million;
•changes to the types of investments which are acceptable for SIVs and PIVs;
- the granting of additional powers to Austrade to make nominations for the SIV and PIV and to monitor the market; and
- transitional changes which preserves that eligibility of applicants who were granted the sub-class 188 SIV prior to 1 July 2015 who invested under previous complying investment rules.
Recap of the SIV program
The SIV program was introduced in November 2012 and provided a two step pathway to permanent residency for investors who invest a minimum of $5 million over a 4 year period in a complying investment.
The key features of the SIV program which underpinned its success in the 2 ½ years since its initial introduction were:
- unlike other skilled visa or business visa categories, there were no English language requirements or business skills requirements that needed to be satisfied;
- an applicant was not required to operate a business in Australia. Instead, an applicant for the SIV needed to invest in complying investments which included, amongst other things, State or Territory Government bonds, complying managed funds which invested in Australian listed shares, corporate bonds, mortgages, agribusiness, infrastructure or real estate, or private companies which passed sponsorship requirements determined by State or Territory Governments and the Department of Immigration and Border Protection (DIBP); and
- SIV holders only needed to be in Australia for 40 days per year for 4 years to satisfy the residency requirement in order to apply for Australian permanent residency.
The SIV program attracted strong demand from prospective high net worth investor migrants (particularly from China and Asia). As at December 2014, almost 500 SIVs were granted resulting in the injection or the proposed injection of approximately $2.5 billion into the Australian economy.
Key SIV changes
In October 2014, the Federal Government undertook a review of the SIV program with the purpose of re-tasking SIV investments into areas of the economy where the injection of capital would significantly encourage growth and entrepreneurial activity and exploring the possibility of introducing a PIV program. The review, which was administered in conjunction with Austrade, the Minister of Trade and Investment and the DIBP, undertook a number of rounds of consultation before announcing the revamped SIV program.
Whereas previously, complying investments for SIV purposes provided significant flexibility regarding the choice to invest in government bonds, certain types of managed funds and private companies, from 1 July 2015 complying investments will now include mandatory allocations to certain types of assets including:
- Venture Capital Investments: a minimum of $500,000 investment in an Australian venture capital fund which invests in start-ups and small private companies. The venture capital component must be invested in an AusIndustry registered Venture Capital Limited Partnership (VCLP), an Early Stage Venture Capital Limited Partnership (ESVCLP) or an Australian Venture Capital Fund of Funds (AFOF). Venture capital funds do not have to be invested immediately. SIV applicants will have a period of 12 months following the grant of the provisional visa to make an investment in an eligible VCLP or ESVCLP. Where investments in venture capital funds are realised before the end of the 4 year term of the provisional SIV (sub-class 188), the realised capital must be reinvested in a complying venture capital investment, Emerging Companies Investment or Balancing Investment which complies (see next two bullet points) with the rules;
- Emerging Companies Investments: a minimum of $1.5 million investment in a complying managed fund which invests in emerging companies (companies which have a market capitalisation of less than $500 million). There is some flexibility for the complying managed fund to invest a certain allocation of its assets in unlisted companies, companies with market capitalisation greater than $500 million and foreign companies and cash and derivatives (for risk management purposes only), however, there are strict valuation limits on those investments. The emerging companies fund is also required to maintain a portfolio of securities issued by no less than 20 different issuers and the fund must not invest more than 10% of its net asset value in any one security issuer; and
- Balancing Investments: the balance of investment in complying managed funds which invests in listed Australian companies, Australian corporate bonds/notes in listed Australian companies, deferred annuities or non-residential real estate in Australia (there is a 10% limit on residential real estate for the complying fund).
In respect of the balancing investments and the emerging companies funds, a further requirement which is likely to cause angst amongst smaller fund managers is that fund managers responsible for managing Emerging Companies Investments must hold at least $100 million firm wide funds under management in order to qualify for SIV compliance.
Other key changes are:
- investors and their associates (e.g. spouse or related companies) must not be involved in the management of the investment structure in which the managed funds invest through;
- investments in Australian private companies and State and Territory Government bonds will no longer qualify for SIV;
- investments in Australian mortgage funds are not complying investments from 1 July 2015 onwards; and
- loan back funds where the interests in the fund is used as collateral for loans will no longer be permitted.
Premium Investor Visa Updates
The Premium Investor Visa will be introduced on 1 July 2015 which requires a $15 million complying investment. PIV holders will be able to apply for an Australian permanent visa 12 months after the investment as opposed to the 48 months required for SIV holders.
PIVs are based on referrals from State/Territory Governments and are designed to attract entrepreneurial skill or talent to Australia. Austrade will assess and nominate the candidate.
PIV investments can either be made directly or through managed funds into Australian listed securities, government bonds/notes, corporate bonds issued by Australian public listed companies, private Australian companies, property in Australia (excluding residential real estate), and annuities issued by Australian life companies.
SIV and PIV opportunities for Australian Fund Managers going forward
The likely winners of the proposed SIV and PIV changes are:
- the Australian venture capital industry which stand to reap significant rewards from the influx of SIV money which has been mandatorily allocated into this area. However, there are a number of key challenges which must be addressed by VCLP, ESVLCP and AFOF general partners before the full potential of SIV investment may be realised. These include the difficulty of deploying SIV money into profitable venture capital investments and the difficulties of returning capital investments at the end of the 4 year provisional visa term;
- established or large Australian fund managers specialising in Australian equity funds, REITs and emerging companies sectors. This market segment had previously not attracted a significant proportion of the SIV market as investors look to the security of government bonds or the perceived more secure returns offered by property development funds and mortgage funds. However, the changes in SIV rules are likely to boost inflows for Australian equity managers both in the small cap and the large cap sectors; and
- REITs and commercial property funds are also likely to benefit significantly from the changes in SIV rules as Asian investors may naturally gravitate towards investments underpinned by bricks and mortar.
On the other end of the spectrum, smaller fund managers (particularly start-up fund managers), property fund managers and mortgage fund managers will lose access to SIV and PIV capital.