The Australian Securities and Investments Commission (ASIC) issued a temporary stop order against Storehouse Residential Trust, a registered management fund promoted by K2 Asset Management Ltd, due to deficiencies in target market determination (TMD).。

The interim order prohibits K2 from issuing interests, providing product disclosure statements (PDS) or providing financial product advice to retail clients who propose to invest in the fund to protect consumers and retail investors from purchasing products that may not be suitable for their financial objectives, conditions or needs.。

ASIC believes that the definition of the target market in the Fund's TMD is too broad and does not properly take into account the risks and characteristics of the Fund, and that the information within the TMD is inconsistent。

ASIC's concerns include:

• A mismatch between the Fund's investment risk profile (very high risk) and the risk profile identified for potential investors in the target market (high and medium risk).
  The target market includes investors (25-75%) who intend to hold the fund as a core component, and the fund's portfolio is very low in diversification and very high in risk.
  Consumers whose investment objectives are capital preservation or income generation may be in the target market, capital loss is a significant risk, and income distribution may not occur regularly;
  Consumers with an investment horizon of less than two years may belong to the target market, while the Fund's recommended investment horizon is at least five years;
  The target market includes investors who need to withdraw funds annually, but there are withdrawal restrictions due to the lack of liquidity of the fund and the maturity of the underlying assets of three to five years。No commitment to provide redemptions and withdrawals based on the Fund's liquidity。

ASIC also believes that the allocation conditions in the TMD are not appropriate to ensure that the fund may be allocated to investors in the target market.。

The TMD contains a distribution condition stating that the product is only suitable for distribution to consumers who have received general financial product advice。ASIC contends that TMD fails to prescribe the conditions of distribution for direct-to-consumer distribution or for distribution through financial product proposals where such distribution appears likely to occur.。

If these issues are not resolved in a timely manner, the committee will issue a final order。K2 will have the opportunity to submit comments before making a decision on any final stop orders。

As of June 30, 2022, Storehouse Residential Trust had $22.5 million in assets under management。

Under the DDO, financial product issuers must pay close attention to the risks and characteristics of the relevant products to appropriately define the target market for each product with sufficient granularity。Issuers also need to consider how to distribute their products and have the appropriate conditions to ensure that the products are targeted to the target market。

ASIC is conducting targeted monitoring to check product publishers and distributors for DDO compliance。