Going into a Small APRA Fund with friends. Yes/No?

I'm looking at going into a small APRA Fund with a few friends (you can have up to 6). Similar to an SMSF, but all compliance, auditing, reporting etc.. undertaken by a professional trustee. We keep separate member balances and investment portfolios within the fund and we individually choose how to invest our balance, just as if we each had our own SMSF. It is more costly than an SMSF, hence the reason for spreading the costs across a few members. It also means each member doesn't need to have a large super balance to begin with. Mine is only $120k. Anyone else doing this with success? Anyone considering it as a viable option?

 

Whats the advantage if it is more costly than a SMSF?

 

Has the SAF administrator actually agreed each member can have different investment portfolios that you "individually choose"?

 

Yes, they have. Member balances will be reported individually and each will have their own investment portfolio.

 

Compliance is controlled and completed by the professional trustee, so we're not relying on each other to adequately undertake the responsibilities of a trustee. An SMSF is also not an option for me, as I have outstanding tax obligations.

 

Well, member balances always need to be reported individually in super, there's nothing special in that.

But I'm curious which SAF administrator will run separate investment portfolios? And if this is actually more cost effective than SMSF or industry/retail fund. What sort of investments (and limits) do they let you choose?

 

Well, what I'm interested in is property (rural vacant land) and only an SMSF or Small APRA fund can accommodate that (and SMSF not an option). There are only 2 SAF providers in the market, so we're not spoiled for choice.

Acceptable assets
• Fixed interest investments including term deposits, bank bills, corporate fixed interest* (eg debentures and unsecured notes)
• S&P/ASX 300 listed securities
• Trustee approved exchange traded funds, hybrid securities and listed property trusts • Approved managed funds
• Direct property* (including income-producing property) Note: In all but exceptional circumstances (at our discretion), a management agent must be appointed. For all income producing property, we also require landlord contents insurance and we will determine the minimum amount of insurance.
• Vacant land*
• Commonwealth loans*
• Semi-government securities*
• Shares in private companies*
• Unlisted unit trusts*
• Private unit trusts (related and non-geared)*
• Wrap or external investment account*
• Art and collectables*

 

All the starred items are subject to AET approval ... can you check for approval before you get into this? Is this vacant rural land going to be generating any income, or just costing money?

I guess the risk of getting into the SAF is that the if one or more other members leave (assuming this is OK with the SAF?) then the costs are going to be shared among fewer members which might make it uneconomic.

Edit - looking at the investment guide it seems the most of your $120K you could invest in property will be 70% - so $84,000.

 

Depend on the investments. SAFs are HEAVILY regulated by the investment approval limitations of the trustee ...unlike a SMSF. In costs terms v smsfs they are similar. They will have strict limits on property and WONT touch a borrowing. Why? Because THEY are liable. And what is the strategy if one (or two) members wants out ? SAFs also have requirements for diversification THEY agree with. They may classify rural vacant land as speculative which is a small asset allocation. Property development is prohibited so the vacant land may fail that test rather than being permitted . (eg I see you have quoted AET...This is mentioned to the right of their approved investments you copied)
https://www.aetlimited.com.au/__data/assets/pdf_file/0008/273932/SAF_investment_guide.pdf page 10.

You can get their preassessment eg : All direct property requests must be submitted for assessment by completing the direct property conditional approval form.

Given a SMSF can have 6 members there is a possibility a SMSF and even some investments using a form of "uncontrolled" unit trust could be more flexible. . Also their policies will limit to such a small % its may be unviable. A SMSF must have a investment strategy that should consider the asset class and the needs of the members etc. It can allow a more speculative "all in" choice for example

 

Yes, I've spoken with them and shared my investment strategy. The land is vacant rural, but forested with native hardwood and will be mature in 15 - 20 years. I'll be conducting native forestry practices on the land. Returns will be minimal in short term. It will be for capital growth, rather than income and yes, the land is within the $84,000 threshold.

 

Good luck with insurance. Forestry fire insurance used to be a thing ...Until a few fire seasons destroyed almost all the insured product. There are specialists in agri insurance for this.

The same acquireable asset rule will also prevent acquisition using borrowed funds. ie the acquisition is land, the eventual asset is sale of lumber. If the vacant land is leased to a timber planation owner its OK as the land is then commercially leased on along term lease. No ownership of the growth. More palatable to a SAF but they will usually seek evidence the lumber loss is not on the fund. This came up with vines and happended on NSW south coast after fires and floods. Most wineries wrote new leases and started from scratch.

 

This seems very complicated for what is a sub 100k investment? What sort of returns are you expecting?

 

I read that as one person x $120K and each would have rollovers. A potential 5-6 members