It is now two years since the new investment framework was introduced to the Significant Investor Visa (SIV) program. At the time, it was flagged that the mandated venture capital component may be doubled to $1M or 20% of the $5M complying investment. Austrade recently called on the industry to submit comments for review.
Expat Advisors Community Discussion Group
A boardroom discussion group was held on 20th July 2017 at Barangaroo. Half the attendees were migration agents including Ivan Chait, fund managers including BTIM and Sumo Group, and industry expert David Chin, Basispoint. Lauren Knight from Austrade was also in attendance.
Views from migration agents
Whilst one migration agent felt that for those potential applicants that really want to come to Australia they would still proceed, most felt the venture capital component was already deterring many from moving to Australia.
This has been evidenced by the huge drop in numbers; only 193 SIV2s have been approved in the last 22 months versus 1,631 in the first two and a half years, a reduction of more than 80%.
There is also feedback that venture capital is complicated and there is a lack of understanding of the sector. There have not been any accessible training sessions despite the push by the Venture Capital Association (AVCAL) for inclusion in the SIV program, nor is there one place to go for a full list of complying funds.
Migration agents are also seeing potential migrants considering other jurisdictions such as Cyprus, Spain and New Zealand (Cyprus and NZ permit residential property, a preferred asset class of many Chinese investors). There is also more enquiry in relation to the business visa options.
A bigger potential issue is the consideration of changing the English language requirements to be consistent with other visa categories. The view is that would totally kill the program as most applicants are older and wealthy and not having to learn English is a key attraction of the visa.
Views on the Venture Capital component
In the Chinese language, the phrase Venture Capital actually means “risky investment.” Experience in working with migrants has shown that applicants prefer their visa funds go toward an investment where the capital remains stable and provides a reasonable income return. They also like to see the investment managers track record and with Venture Capital, this is quite opaque.
David Chin from BasisPoint, which runs the annual SIV industry conference, noted that with those VC managers who have set up funds specifically for SIV have incurred a lot of costs and don’t have the budget to fund trips to China. Very few have seen a sufficient number of applicants and in fact, one manager who had taken on a few clients has actually closed, rolling their funds across to another VC manager. Many thought “if we build it they will come” but for accessing the Chinese market it is much more difficult than that – direct distribution channels are required.
Some market participants such as Macquarie and Sumo Group have included a choice of three VC managers in their SIV platforms, whilst BTIM decided to select just one VC manager. This was based on reviewing the industry and feedback from potential applicants for interest in biotech. Along with their small caps and balanced offering it has taken some eight months to get their product ready for market. One of the key issues for particularly the small caps was getting the compliance in place to ensure they didn’t go outside the rules which they monitor daily.
Views on the mandated Small Companies component
Most successful managers have purpose build solutions e.g. UBS Small Companies and this provides a level of comfort they know the detailed rules, have legal advice on compliance, and rigorous processes in place.
The issue, of course, is if there will continue to be sufficient volume to maintain those product offerings. The requirement that fund managers have a minimum or $100 million in funds under management has also cut out a few market players.
It was also discussed that there should be flexibility with the timing of entry into the market to not have to be fully invested immediately. Not only can this potentially move such a thin market, a dollar cost averaging strategy is also prudent for clients. This had been raised previously with Austrade, who has allowed up to 12 months for the investment of the venture capital, but was rejected.
Other Visa Pathways
Overall, $5million is a lot of money for a visa, particularly when it requires putting capital at risk.
Other Visa pathways involving businesses are easier, however, age limits and language requirements, which are relaxed under SIV, can be problematic.
- The 132A visa has been a popular alternative to SIV with requirements for NSW being an investment in an active business for $1.5M and $1.0M in regional areas providing immediate permanent residency (PR). But it does have a business risk as well as turnover and requirements to create jobs. It is only early days but will be interesting to see how many PRs are cancelled as a result of the applicant not actually being involved in the business.
- The 188B has also been raised as an alternative, with the ability to invest $1.5M in government bonds. But again, with an age limit of 55, immediate PR and commitment to continue with active business or investment it is not as attractive as the SIV which is passive and allows the client time as a temporary resident to get their tax affairs in order.
- The US EB-5 program requires an investment of USD 500,000 to 1 million, however, there is currently a backlog of almost seven years!
It is understandable with a lack of local capital to support the venture capital industry in Australia that the government has identified the flow of funds from Asia that had come in under the initial SIV program could be put towards this sector. However, the addition of VC as a mandated asset has not been well received as indicated by the number of applicants dwindling to a trickle so why move forward with increasing the allocation?
Coming on top of the changes to the 457 employment visa category announced in April, which is a huge change to Australia’s migration program impacting on employees and corporates, further changes send a negative signal to the market and may be perceived that migrants are not welcome!
The overwhelming recommendation was to leave the program alone and make no further changes at this time. If the is to be a change it would be to eliminate the VC component. However, if the government pushes forward with an increase it should come from the small companies component and NOT the balancing items where most applicants see an asset class they are more comfortable with such as fixed income and property.
The investment market in China is less evolved than Australia and Chinese investors are much more comfortable with direct assets such as property.
Overall the desire is for simplification, consistency, education and no further changes be made to the program.
You can download the Expat Advisors Community submission including the questions posed by Austrade here.