Small caps to gain from SIV overhaul

Friday, October 24, 2014

The federal government has signalled changes to the Significant Investor Visa (SIV) program, with small cap fund managers and venture capitalists set to reap the benefits.

Yesterday, trade and investment minister Andrew Robb suggested the SIV program would better serve public policy outcomes if participants in the scheme were encouraged to avoid their current penchant for government bonds and invest in “higher risk” investments such as small cap equities and start-ups.

“If [the funds] are going to government bonds, which could be sold anytime and anywhere at a good price, Australia is getting nothing out of it,” Mr Robb told Business Spectator.

“They just park money there for four years and get citizenship. It does not make a lot of sense to me from a public policy point of view.”

Reflecting on the minister’s comments, Australian Ethical domestic equities portfolio manager Andy Gracey, who runs the company's Smaller Companies Trust, told InvestorDaily it was a “logical idea”.

“If you go to venture capital or small cap equities you’re actually promoting new investments in new companies that need capital,” Mr Gracey said.

“It’s probably a more productive type of investment – investing in real assets as opposed to investing in financial assets [such as] treasuries and cash.”

Mr Gracey added that Australian Ethical would encourage SIV investors to consider “positive environmental and social investments”, but said the advent of a “vibrant small cap investing community” would be a good outcome of the government’s flagged changes.

The Australian Private Equity and Venture Capital Association (AVCAL) also welcomed the comments, pointing to the long-term economic benefits of increased start-up investment.

“Australian early-stage companies have, for many years now, been increasingly squeezed for capital owing to many traditional institutional investors decreasing their exposures to higher-risk ventures over time,” said AVCAL head of policy and research Dr Kar Mei Tang.

“Every year, Australian venture capital and private equity managers see a strong pipeline of start-ups, research-driven ventures and innovative small businesses that have the potential to be our future economic drivers.

“But many of these promising businesses and entrepreneurs struggle to secure funding because that kind of risk capital is in such short supply here in Australia.”