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Australian regulator issues forestry MIS report

Huge losses suffered by forestry managed investment schemes in the 2000s have made Australian superannuation funds nervous about agribusiness.

The Australian Securities and Investment Commission (ASIC), the country’s regulator, has issued a submission to the Senate inquiry into forestry management investment schemes.

Forestry management investment schemes, or MIS, a popular investment among many retail investors in the late 1990s, suffered huge losses in the early 2000s largely due to poor management of capital and the acquisition of unsuitable assets.

The collapse of forestry MIS is largely believed to be one of the contributing factors to why the Australian superannuation industry – the country’s $750 billion pension pot – has yet to embrace agriculture as an investment class.

The report details action taken by ASIC such as introducing benchmarks and disclosure principles for agribusiness schemes, issuing guidance for investors about agribusiness schemes, revising the financial resource requirements of firms offering managed investment schemes, revising the land-holding licence condition applied to these firms and conducting surveillance on them.

Other key themes include the need for a compensation system for investors affected and the worrying ease withwhich investment firms can obtain an Australian Financial Services Licence to operate in the market, with ASIC having little power to take it away once granted.

In the submission, ASIC assesses business models and structures of forestry schemes, the legislative regime for them, ASIC’s role in regulating the sector, the impact of external administration, the promotion of forestry schemes, compensation arrangements and options for reform. It collated this information through the surveillance of 67 individual schemes in the three years to 2009.

The submission can be read here.