Just over three years ago, the federal government’s Significant Investor Visa was being embraced by Chinese nationals and hailed as a highlight of Australia’s immigration program.
Introduced in 2012 to attract more high-net-worth individuals and stimulate the economy, the visa offered permanent residency in Australia to individuals willing to invest $5 million into complying investments.
The visa, part of the federal government’s Business Innovation and Investment Program, rapidly became popular among Chinese nationals, with the numbers of applications from Chinese citizens rising from 285 in 2012-13, to peak at 1,393 in 2014-15 – potentially funnelling more than $6.9 billion into Australia if all the applications were approved.
However, in late 2014, the federal government announced changes to the regime, introducing regulations on the types of investments SIV applicants could make.
Prior to the changes, successful SIV applicants had the choice to invest in a proprietary limited company, a government bond or a managed fund.
From July 1, 2015, that framework was scrapped, with SIV applicants no longer offered bonds or allowed to invest in private companies, and instead forced to take a passive investment in a managed fund, with at least 10 per cent of the investment required to be in venture capital.
The number of applicants from China plummeted, falling to just 180 in 2015-16, according to data released by the Department of Immigration and Border Protection under the Freedom of Information Act.
In 2016-17, the numbers of applications rebounded to 370, but were still more than 1,000 lower than the peak in 2015.
Migration Institute of Australia WA president James Clarke said many in the migration industry had warned the federal government during consultation that the changes would turn away Chinese investors.
“The word for venture capital in Chinese is literally ‘risk investment’,” Mr Clarke told Australia China Business Review.
“They’re not ready for it.
“The current structure and the settings are made for a mature and a sophisticated investor, probably more tailored to someone who is from Singapore, or from Malaysia or maybe from Hong Kong, but not from the Chinese mainland.
“I say that because you now must invest into very sophisticated financial products, whereas before applicants could put money into a company or a government bond and could manage the company or just leave it in the government bond.
“Now SIVs have to choose from a suite of very sophisticated products and asset classes.”
Mr Clarke said he was concerned the program was derailed as result of political pressure that emerged in 2015 in New South Wales, with widespread commentary blaming Chinese investors for driving up property prices in Sydney.
“The SIV had nothing to do with that, but it was used to a political end to toughen up on Chinese investment,” he said.
While acknowledging the visa changes had driven away scores of investors, Vantage Asset Management managing director Michael Tobin said the framework revamp was not all bad.
Mr Tobin said the original SIV regime had been plagued by rorting, with anecdotal evidence showing some investors were putting up the $5 million only to have it returned to them shortly after in ‘loan-back’ arrangements.
“The numbers have diminished but that is a result of the fact that a lot of the charlatans have been ruled out of the industry and now the ones that understand it will be the ones that actually provide benefit to the Australian economy,” Mr Tobin said.
“It gives much more protection for the applicant.
“Had it continued the way it was with all the rorting going on, there would have been a lot of non-complying funds, a lot of money lost and Australia’s reputation in the global financial industry would have been quite poor.”
Mr Tobin said following the changes, Vantage, which specialises in private equity investment for individuals, structured its newest fund to be SIV compliant.
By allowing SIV applicants to invest in a compliant fund that was only exposed to private equity, rather than traditional venture capital, the perception of risk was greatly reduced, he said.
“The beauty of the space is you can invest in profitable companies in a traditional private equity manner,” Mr Tobin said.
“Our funds don’t invest in any startups, we only invest in profitable companies with proven products and services and it's by institutional funds that otherwise don’t raise money from SIVs at all, or individuals.”
Vantage has launched new SIV-compliant fund, in partnership with Perth-based 3 Oceans Capital, which has an extensive network of high-net-worth individuals in China interested in migrating to Australia.
“Forming the JV with 3 Oceans is a great opportunity to tap into a source of capital that we otherwise wouldn’t have access to,” Mr Tobin said.
“Whereas traditional Chinese SIVs might have seen the venture capital piece as the riskiest, once we educate them that we’re not investing in startups and that we’re investing in profitable companies and assisting them to grow their earnings, they understand and feel comfortable that they’re not going to lose money from this particular segment.
“For us, and with 3 Oceans moving forward, it is an opportunity to provide the SIVs with a pathway to profit from this investment.
“It’s definitely a complying investment and will give them their visa after four years, but it also gives them the opportunity to build some wealth in an area that consistently produces stronger returns than property, bonds and listed markets.”
3 Oceans Capital general manager Sophie Chen said the company had already made significant progress in its efforts to attract Chinese high-net-worth individuals to invest in the 3 Oceans fund.
“We have long-term relationships with strategic business partners across four major and second-tier cities in China,” Ms Chen said.
“We’re confident we can secure 20 to 30 clients per year.”
Ms Chen said 3 Oceans would use that network to ensure Chinese clients were comfortable with the SIV process.
“We share the same culture and heritage so we understand our clients’ needs and the level of risk they are comfortable with,” she said.’
“We tailor investment plans to suit their needs.”