Geoff Wilson dubs sophisticated investor changes "illogical"

Wilson Asset Management founder and chairman Geoff Wilson AO has called on the Federal Government to axe ASIC's proposed changes to the "sophisticated investor" test, arguing they will price out everyday investors from some of the ASX's best opportunities. 

According to ASIC, the thresholds are now outdated and need to reflect 23 years' worth of inflation. Following ASIC submissions, the Parliamentary Joint Committee on Corporations and Financial Services commenced an inquiry into the proposed increases to the financial thresholds that qualify investors as "sophisticated". 

If implemented, the increased limits would represent the first change to these thresholds since the advent of the Corporations Act in 2001.

Currently, investors who earn $250,000 per year for two consecutive years or who have more than $2.5 million in assets are considered "sophisticated" - meaning, they can access opportunities unavailable to investors with fewer assets or lower annual incomes - like pre-IPO opportunities, capital raises, and wholesale funds. 

If ASIC's proposed changes are implemented, these thresholds would increase to $450,000 per year and $4.5 million in assets. 

"It's illogical. It's farcical. Why transition to something new that leaves investors worse off?" Wilson told Livewire.

"To me, they have totally missed the mark - particularly when it comes to listed equities and the requirements for sophisticated investors." 

Instead, Wilson believes the changes should be scrapped entirely, and instead, that ASIC should "level the playing field" for all investors to participate in placements or capital raisings on the ASX - or invest in funds or opportunities typically reserved for wholesale investors. 

The reason? Non-sophisticated investors have missed out on $15.7 billion in value through discounted capital raisings over the last four years, he argued. 

According to Wilson, this is highly illogical - given that sophisticated investors or institutions can participate in these raisings at a discount and then immediately sell these shares to retail investors at a premium. 

"You're effectively legislating to reduce investors' ability to take risks and therefore obtain rewards because we all know there's a direct correlation between the risk you take and the rewards you make," Wilson said. 

"If they really want to introduce a change, it should be a test around financial literacy." 

This would enable those who work in the financial services industry, or those who have a high level of knowledge around financial services - but not the required annual salary or net assets - to invest in opportunities that are currently out of reach. 

So, why is Wilson campaigning when his team - like other funds management firms - benefit from the status quo, and would continue to benefit if these changes are passed? 

"We run eight listed companies. When we raise capital - we might do a share purchase plan and a placement - but if an investor isn't classified as a sophisticated investor, they can't participate in the placement, only the share purchase plan. To me, that's not fair." 

Wilson argues the legislation was "poor" to begin with, and questions why ASIC would want to introduce changes that would make it even worse. 

And, he adds that women will be far worse off if ASIC succeeds and these changes are passed. 

"The people that get impacted the worst are women - because women tend to have lower balances in their super fund, or savings, and so their chance of making that hurdle of $4.5 million is far less," he said. 

"These changes will effectively stop them from participating in higher risk, higher return opportunities or to get a free kick from capital raisings in the stock market. It just makes me shake my head."