ASIC hits Fidante private credit fund with interim stop order

The $800 million Ares Global Credit Income Fund, which is issued by Fidante Partners, has been hit with an interim stop order from the corporate regulator for target market determination (TMD) deficiencies.

ASIC has prevented Fidante Partners, the responsible entity, from issuing Class A units in the fund for 21 days unless revoked earlier.

ASIC said it is concerned that Fidante has not met its design and distribution obligations (DDO) and considers that if the product was issued to a retail client in Fidante's target market, the product would be unlikely to be consistent with the objectives, financial situation and needs of the retail client.

The TMD states the fund primarily invests in a diversified multi-sector credit portfolio with a focus on providing investors with steady monthly income from an actively managed portfolio of fixed income securities.

"This product is likely to be appropriate for a consumer seeking stable income with minimal risk of capital loss and to be used as a satellite to core component of their portfolio where the consumer has a low to medium investment timeframe and a medium to high risk-return profile," the document reads.

ASIC said it is concerned the TMD states the "product is suitable for consumers with a medium to high risk and return profile" and that it is suitable for consumers seeking capital preservation.

The regulator is also concerned about the inappropriate level of portfolio allocation of up to 50% of a consumer's investable assets for investment in the product. It also argued the timeframe for consumers to access capital was inappropriate.

The interim stop order prevents Fidante from dealing in the product, giving a product disclosure statement for, or providing general financial product advice to retail clients recommending an investment in the product.

With $799.9 million in assets at the end of June, the Ares Global Credit Income Fund invests in a diversified portfolio of corporate and structured credit assets, including US and European corporate bonds, bank loans and alternative credit markets.

It also invests in global asset-backed securities including but not limited to commercial mortgage-backed securities and collateralised loan obligations, derivatives, cash and cash equivalents.

Last month, ASIC also slapped interim stop orders on Remara Investment Management's private credit products for similar deficiencies in its TMD, which have now lifted.

ASIC commissioner Simone Constant said the actions form part of ASIC's ongoing work to address risks in private credit.

"Where ASIC identifies concerns that products may be reaching retail investors they were not designed for, we will use our regulatory tools to act swiftly to intervene early, disrupt poor practices and protect investors from potential harm," she said.

The Australian Competition and Consumer Commission (ACCC) recently approved the merger of Fidante and Channel Capital.

Challenger subsidiary Challenger Funds Management Holdings (CFMH) currently holds 100% of Fidante. Under the acquisition, a newly established entity, Channel Group Holdings will indirectly acquire Channel Capital and Fidante. CFMH will also acquire a 45% interest in Channel Group.

The ACCC said, "the acquisition may be put into effect" and would unlikely substantially lessen competition in any market.