Sent: 26-05-2009 11:07:02
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Super gearing is growing
The issue of super and gearing is beginning to gather some serious pace.
These rules have been formally in place since later 2007 and it has taken awhile for some action to appear.
As may be becoming apparent a lot of the interest in these structures is in the property arena more so than in equities and other asset types. This is a strange outcome when you think how and why these rules were created.
As many of you would know many of these rules were really created to provide certainty for investment banks providing instalments over list shares or baskets of listed shares.
At a practical level there are many issues which need to be taken into account when putting one of these arrangements in place. Like all areas of the law which involve new transaction structures everyone's understanding of them is improving as time goes by. This process will continue for several years assuming the rules stay in place for that long without being amended.
Over the next few weeks I will have two articles on this issue in my Australian DIY Super column. The first article will explore the market phenomenon which these rules seem to be creating and the second will discuss some of the areas which super fund trustees need to be careful about.
There seems to be at least two schools of thought about the desire of the government to amend or remove these rules. Some argue that "gearing" in super is dangerous. Others argue that super gearing is allowing people who like property to get significantly involved in super for the first time. It will be interesting to see who ultimately lobbies the government better.
A major issue for advisers is, can they provide advice on these transactions? It seems clear to me that the chances of being asked about super gearing at some stage over the next 6 to 12 months by a client is quite strong. Licensing and PI insurance are major issues here.
Finally you might find the following article about the causes of the recent financial crisis by Niall Ferguson which appeared in the New York Times Magazine interesting: http://www.atcbiz.com.au/r.php?r=q3kjf0z. I notice that ABC TV have a program on Thursday 28 May at 8:30pm with Mr Ferguson about a similar topic.
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