← News · 22 October 2025

How Managed Funds Work

Definition and basic idea

• A managed investment scheme (MIS) in Australia is a pooling vehicle: many investors contribute money (or something of value) to acquire interests in the scheme, the contributions are pooled or used for a common purpose, and investors do not have day-to-day control over how the scheme is run. (Dentons)
• The Corporations Act 2001 (Cth) governs them. There are registered schemes (with specific regulatory obligations) and unregistered schemes. If you have 20 or more members, or a person promoting the scheme, then registration with ASIC is generally required unless only wholesale investors are involved. (Dentons)
• Let's now dig deeper into how managed funds work.

Legal / structural forms

• Most MIS are set up as unit trusts — this helps with tax flow-through to investors. But other forms also exist: bare trusts, discretionary trusts, syndicates, and contractual arrangements. (Dentons)
• More recently, Australia introduced the Corporate Collective Investment Vehicle (CCIV) regime (2022) to offer an alternate structure more aligned with vehicles in other jurisdictions. (Dentons)

Responsible Entity (RE) / Fund Manager

• Every registered managed scheme must have a Responsible Entity (RE). This entity holds scheme property on trust for members, operates the scheme, is licensed, and has statutory duties. (Dentons)
• The RE must hold an Australian Financial Services Licence (AFSL) with rights to operate the scheme. (Chambers Practice Guides)

How They Operate in Practice

Accounting, valuation, fees, disclosure

• Investors receive “units” (or similar interests). The price (or value) of each unit is based on the value of underlying assets and fund liabilities, often daily (for liquid funds) or at intervals depending on asset type. The RE is responsible for proper, regular valuation. (Australian Parliament House)
• Disclosure documents like a Product Disclosure Statement (PDS) are required for registered schemes offered to retail investors; these disclose fees, risks, the investment strategy, costs, conflicts, etc. (Dentons)

Governance and compliance

• A constitution or trust deed sets out the rules of the scheme: how it operates, what the RE can do, fees, rights of investors, etc. (Dentons)
• A compliance plan is required for registered schemes. This sets out how the RE will ensure compliance with various legal obligations (e.g. reportable situations, complaints, distribution obligations). It must be audited periodically. (Treasury)

Investor rights

• Investors in registered schemes have rights under the Corporations Act to get audited financial statements, periodic reports, to be treated fairly, etc. (Treasury)
• The RE has duties: to act honestly, with care and diligence, in the best interests of members, treat members fairly, avoid conflicts of interest (or manage them properly). (Treasury)

Regulatory Framework

Legislation

• Corporations Act 2001 (Cth) — especially Chapter 5C for managed investment schemes. It sets out registration, duties of REs, obligations to disclose, how schemes must operate. (Chambers Practice Guides)
• ASIC Act and other laws give ASIC power to supervise, enforce, investigate. (Australian Parliament House)

Regulator: ASIC

• ASIC (Australian Securities & Investments Commission) is the main regulator for managed investment schemes. It registers schemes (or supervises registration), monitors compliance, enforces the law, investigates misconduct. (ASIC)
• ASIC provides guidance (regulatory guides), issues alerts, takes enforcement when there are breaches. (Regulation Tomorrow)

Other oversight / complaint / investor protection mechanisms

• AFCA (Australian Financial Complaints Authority) handles complaints by investors about financial services (including financial advice, schemes). (afca.org.au)
• Compensation Scheme of Last Resort (CSLR): for cases where the adviser is insolvent, etc., some compensation may be available, subject to limits. (ABC)
• Financial resource / capital requirements: Responsible entities must meet certain minimum net asset thresholds. Professional indemnity insurance, etc. (Treasury)

ASIC’s Role and Perspective

Recent Reviews / Findings

• In 2025, ASIC reviewed compliance plans for ~50 responsible entities covering nearly half of managed fund assets (about $1 trillion). They found widespread deficiencies in compliance plans: missing or inadequate treatment of internal dispute resolution, reportable situations, design & distribution obligations. (protechtgroup.com)
• ASIC has also become concerned about the dangers to investors from marketing-practices, conflicts of interest, illiquid or difficult-to-value assets, misleading advice, or risk mislabelling. The recent cases of First Guardian, Shield, and Australian Fiduciaries have brought these issues sharply into focus. (The Guardian)

Enforcement and regulatory changes

• ASIC is suing Equity Trustees in relation to the Shield Master Fund collapse, among other legal actions. (ABC)
• ASIC’s FY2025-26 plan shows that the fallout from Shield/First Guardian is a major theme: greater surveillance for high-risk managed schemes, closer attention to superannuation platforms, stronger requirements for transparency and early detection. (Professional Planner)

Recent Trends & Examples

Major failures and losses

• The collapse of Shield Master Fund, First Guardian Master Fund, and Australian Fiduciaries together have affected over 12,000 investors and caused losses estimated at A$1.2 billion (or more) in retirement savings. (The Guardian)
• Many of these losses appear connected to undisclosed or poorly disclosed risk (illiquid assets, over-valuation), conflicted advice, use of “super platforms” (platforms through which investors can access many fund options) without sufficient due diligence. (The Guardian)

Regulatory response

• ASIC has sharpened its scrutiny: asking for detailed questionnaires from private credit funds about governance, valuation, conflicts. (Dentons)
• Also, more detailed reviews of compliance plans, stronger expectations around design & distribution obligations (DDO), internal dispute resolution (IDR), breach reporting (Reportable Situations under RG 78) are being enforced. (protechtgroup.com)

Investor behaviour trends

• More awareness from public media of the risk of high-yield promises, sales techniques, especially among retirees or those switching super.
• Increased concern among retail investors about fees, transparency, how superannuation options are selected, and the involvement of advice / lead generate / platforms in channeling funds.

Common Issues (Positives & Negatives)

Why Regulation Matters & Investor Protections

• Investor confidence depends heavily on knowing there are laws that protect rights, enforce duties, punish misconduct. Without regulation, many people wouldn’t invest or would demand much higher risk premiums.
• Key protections include: duties of REs (best-interest obligations, honest dealing, equality between similar investors), disclosure to investors, periodic reporting, audit, legal redress.
• Enforcement makes it real. For example, ASIC suing or taking action sends signals, removes bad actors, and ideally deters future misconduct. The recent Shield / First Guardian cases are illustrative. (ABC)

Practical Insights for Investors

Here are things you should check / ask / do before investing in a managed fund or scheme.

1. Is it registered or unregistered? Registered MIS have higher regulatory obligations. If unregistered, risk is higher.
2. Who is the Responsible Entity? What is their track record? Are they reputable, well capitalised, independent?
3. Fees: management fees, performance fees, entry/exit (subscription/redemption) fees. Ask how transparent and reasonable they are.
4. Valuation of assets: If the fund holds illiquid assets (property not traded; loans; private investments), how often are valuations done? What methodology? Risk of overvaluation or stale valuations.
5. Liquidity / redemption terms: how easy is it to get your money back? Are there lock-ups, gates, withdrawal restrictions?
6. Risk disclosure: Is there a clear statement of risks (market, liquidity, valuation, conflicts)? Does the PDS match what you are told verbally?
7. Advice channel: Was this fund suggested via an adviser, or was there heavy marketing? Check for conflicts: does adviser or marketer have a financial interest in you choosing that fund?
8. Superannuation platforms: If the fund is offered via such a platform, check what due diligence the trustee or platform has done. Are there oversight mechanisms to remove risky products?

Common Issues Seen in Recent Cases

The recent failures (Shield, First Guardian, Australian Fiduciaries) highlight several cautionary lessons:

• Over-promising / under-disclosing risk: Investors were often told returns would be good without matching risk disclosures. Some assets turned out to be hard to value or illiquid. (The Guardian)
• Marketing / financial advice conflicts: Use of “lead generators”, cold calling, advice that appears neutral but channels investors to certain funds where the adviser or associated entities benefit. (berrillwatson.com.au)
• Platform / trustee due diligence failures: Superannuation platforms that allowed poor-quality funds to be listed, sometimes with inadequate checks. (ABC)
• Governance / compliance system failures: Weak or outdated compliance plans; failure to properly monitor reportable breaches; failure to correct issues early. ASIC’s 2025 reviews show many REs lagging on regulatory obligations. (protechtgroup.com)

Recent Regulatory / Legislative Reforms & Trends

• The CCIV regime (Corporate Collective Investment Vehicle) introduced in 2022 is a newer option for structuring funds. (Dentons)
• ASIC pushing more on design & distribution obligations (DDO), ensuring products are targeted at appropriate investors and that disclosure and marketing align with target markets. (protechtgroup.com)
• Closer supervision of valuation practices, especially for illiquid / unlisted assets. (Dentons)
• Increased enforcement actions, particularly related to superannuation-linked managed funds, adviser misconduct, platform governance. (ASIC)

The Regulatory Landscape: Strengths & Weaknesses

Strengths

• Well-developed legal framework (Corporations Act, ASIC Act), clear duties of REs.
• Disclosure and licensing systems are established.
• Complaint & compensation mechanisms (AFCA, CSLR) exist.
• Increasing regulatory vigilance given recent crises.

Weaknesses / Gaps

• Some compliance plans are more “tick-box” than operational — compliance on paper but not in practice. (ASIC)
• Difficulties in oversight of unregistered schemes, or of schemes that have mixed retail/wholesale / super platform channels.
• Vulnerability where advice is conflicted, or marketing/lead generation are poorly regulated.
• Valuation of illiquid assets remains a tricky area: risk of over-valuation, delayed corrections.
• Investor education: many retail investors may not fully understand risks, or read disclosure poorly, especially when complex or jargon-filled.

Importance of Regulation for Investor Confidence

• Regulation (properly enforced) helps ensure that investors believe the system is fair, that returns are genuine, risks are disclosed, abuses will be punished. That belief encourages more people to save/invest, which supports capital markets.
• When regulatory failures happen (e.g. fund collapses because governance or duty obligations were not enforced), confidence is shaken. Superannuation is central to many Australians’ retirement savings, so failures there can have large and long-lasting effects.
• Well designed regulation also helps reduce “regulatory arbitrage” (actors structuring schemes to avoid regulation), and helps ensure comparability between products — to help investors make informed choices.

What to Watch Out For / What Investors Should Do

To protect yourself, you might:

• Seek professional advice (financial adviser, legal adviser) especially when investing large sums or for retirement. Make sure your adviser is licensed and disclose their remuneration / conflicts.
• Do your own due diligence: read the PDS, the constitution, recent financial statements; check who the RE is, what their track record is; ask about valuation methodology.
• Be skeptical of high returns promised with low risk, especially from new funds or those with little operating history.
• Understand the liquidity / redemption rules, fees, how exit works. Know what happens if the fund hits trouble.
• Monitor the performance and conduct of the fund after investing — read annual reports, be alert to news, regulator alerts.

Summary

Managed funds (or managed investment schemes) are very useful tools: they let individuals pool resources, access professional management, and diversify risk. But in Australia they depend heavily on regulation, governance, advice, transparency, valuation practices, and fair marketing.

Recent failures remind us that even well-advertised or large schemes can fail if risks are hidden or controls are weak. For investors, asking the right questions, reading the right documents, choosing reputable fund managers and responsible entities, and seeking professional advice are essential.

References

1. Dentons. Managed Investment Schemes. November 18, 2024. https://www.dentons.com/en/insights/articles/2024/november/18/managed-investment-schemes
2. Dentons. Regulatory Update for Australia’s Private Capital Sector. June 24, 2025. https://www.dentons.com/en/insights/articles/2025/june/24/regulatory-update-for-australias-private-capital-sector
3. Chambers & Partners. Investment Funds 2024 – Australia Law & Practice. https://practiceguides.chambers.com/practice-guides/comparison/988/15261/23863-23864-23865-23866
4. ASIC. Managed investment schemes. https://www.asic.gov.au/regulatory-resources/managed-funds/managed-investment-schemes
5. ASIC. ASIC takes further action against Ferras Merhi over First Guardian and Shield superannuation advice. Media release 25-184MR, September 2025. https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-184mr-asic-takes-further-action-against-ferras-merhi-over-first-guardian-and-shield-superannuation-advice
6. ASIC. ASIC uncovers widespread compliance plan deficiencies in the managed investment industry. Media release 25-090MR, May 2025. https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-090mr-asic-uncovers-widespread-compliance-plan-deficiencies-in-the-managed-investment-industry
7. Australian Parliament House. ASIC: Chapter 4 – Managed investment schemes. https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Membership/asic/asic20133july/c04
8. Australian Treasury. Consultation Paper: Managed Investment Scheme Regulatory Framework. August 2023. https://treasury.gov.au/sites/default/files/2023-08/c2023-404702-cp_0.pdf
9. Australian Financial Complaints Authority (AFCA). Annual Review 2022–23. https://www.afca.org.au/media/1790/download
10. ABC News. Superannuation fund platforms shield First Guardian collapse victims from compensation scheme. September 4, 2025. https://www.abc.net.au/news/2025-09-04/superannuation-fund-platforms-shield-first-guardian-compensation/105731472
11. The Guardian. Investment fund collapse linked to superannuation platforms: First Guardian, Shield Master Fund, Australian Fiduciaries. July 24, 2025. https://www.theguardian.com/australia-news/2025/jul/24/investment-fund-collapse-linked-to-superannuation-platforms-first-guardian-shield-master-fund-australian-fiduciaries-ntwnfb
12. Professional Planner. Shield/First Guardian fallout dominates ASIC’s FY26 strategy. August 2025. https://www.professionalplanner.com.au/2025/08/shield-first-guardian-fallout-dominates-asics-fy26-strategy
13. Protecht Group. ASIC managed fund compliance review 2025: Key findings and how to respond. https://www.protechtgroup.com/en-au/blog/asic-managed-fund-compliance-review-2025-key-findings-and-how-to-respond
14. Regulation Tomorrow. ASIC updates guidance for managed investment schemes. https://www.regulationtomorrow.com/au/asic-updates-guidance-for-managed-investment-schemes
15. Berrill & Watson Lawyers. First Guardian and Shield Master Collapses. September 2025. https://www.berrillwatson.com.au/supertalk-blog/2025/september/first-guardian-and-shield-master-collapses