Alternative Funds 2025 Comparisons

Australia is an attractive location for alternative funds, managers and investors, with deep capital pools, a skilled financial services workforce and a stable legal and geopolitical environment.

For fund sponsors, Australia offers potential exposure to the AUD4 trillion superannuation system (as at March 2025) and to significant capital sources via wealth management channels. The 2025 UBS Global Wealth Report ranks Australians as the second wealthiest in the world, with median wealth of approximately USD270,000 per adult – second only to Luxembourg. In this regard, the wealth of Australians is supported by very high residential property prices.

For managers, Australia offers a deep pool of well-trained investment professionals and associated service providers, including fund administrators. For investors, Australia offers a stable geopolitical environment supported by a transparent legal system. Although relatively small by global standards, the Australian market presents strong potential for sustained economic growth through an immigration per head of population at a rate that is approximately double that of the UK and the USA, triple that of Germany, and five times that of France.

On the tax front, Australia offers a competitive environment for alternative funds through its attribution managed investment trust (AMIT), managed investment trust (MIT), and corporate collective investment vehicle (CCIV) regimes, which provide concessional withholding tax rates for eligible foreign investors and capital treatment certainty for domestic investors. However, several factors influence the jurisdiction’s attractiveness. Increased scrutiny by the Australian Taxation Office of structures and variations in state-based stamp duties across jurisdictions can materially impact the design of structures and transaction costs, particularly for real estate and infrastructure investments. Victoria’s additional property taxes have reduced its appeal for real estate-focused strategies.

Although the key elements of Australia’s regulatory regime for alternative funds have been in place for more than 20 years, regulatory proposals during 2025 indicate the regime is under refinement. Substantial growth in Australian superannuation funds has also contributed to changes within the Australian capital markets ecosystem, with implications for the alternative funds sector.

In early 2025, the Australian Securities and Investments Commission (ASIC) released a discussion paper on the dynamics between Australia’s public and private markets to gather actionable ideas on regulation that could enhance the operation of these markets. The context of the discussion paper was a perception that public markets are not performing as a mechanism of allocating capital efficiently, thus potentially stifling economic growth. ASIC has sought industry feedback and is expected to provide an update in November 2025 (as of 2 October 2025).

Tax regulation is tightening as policymakers seek to balance Australia’s competitiveness against an erosion of the base. New thin capitalisation rules limiting interest deductibility when interest cover exceeds 30% of tax EBITDA significantly impact leveraged buyout structures, while proposed foreign resident capital gains tax (CGT) reforms target non-residents disposing of direct or indirect interests in a broadened definition of Australian land.

The Australian Taxation Office has intensified scrutiny of MIT structures expressing concerns about arrangements that inappropriately restructure existing trust or investment structures to access the concessional MIT withholding tax rates, particularly where restructures lack commercial rationale. Concurrently, the Australian government has deferred measures to extend clean building MIT withholding tax concessions to data centres and warehouses.

In view of the ongoing concentration of public markets in Australia, alternative investment strategies are seen as having an important role to play in the Australian economy. The regulatory environment shows tension between maintaining competitiveness and preventing base erosion. It is hoped that regulatory support for the alternative funds industry in Australia will encourage investment.

Alternative funds are commonly established for real estate, infrastructure, private equity (including venture capital), private credit and hedge fund strategies.

Unit trusts are the most typically used structure for alternative funds, as they provide greatest flexibility in relation to permissible investments. They are not subject to restrictions on the asset classes in which the fund may invest in, restrictions on the quantum of such investments, or any rules regarding compulsory diversification of the investment portfolio or the total fund size.

Venture capital limited partnerships (VCLPs) and early-stage venture capital limited partnerships (ESVCLPs) are often used for eligible venture capital investments (EVCIs), which excludes investing in entities whose predominant activities include property development, land ownership, leasing, providing capital to others, and the construction or acquisition of infrastructure. Tax concessions can be applicable to foreign investors in those structures, including an exemption from income tax on profits (both income and capital).

CCIVs can also be used, but this structure is far less common. These were seen as an alternative to AMITs by offering the same tax profile but in a corporate setting. As the regime was introduced sometime after AMITs became widely adopted in the Australian funds management industry and it offered fewer other advantages, most fund managers have found it unnecessary to restructure their arrangements into the newer regime or disturb mature holding structures by holding newly established corporate entities.

Unit Trusts That Are Unregistered Managed Investment Schemes

The establishment of a unit trust does not of itself require any regulatory approval, if structured as an unregistered managed investment scheme.

Unit Trust Established as a Registered Managed Investment Scheme

If a unit trust is to be a registered managed investment scheme, ASIC must consent to the registration. ASIC must register the scheme within 14 days of receiving an application that satisfies the requirements specified by Australian legislation.

The trustee of an Australian unit trust must hold an Australian Financial Services Licence (AFSL) or have the benefit of a relevant exemption from the requirement to hold an AFSL. An application for an AFSL can be lodged with ASIC, which aims to decide 90% of complete applications within 240 days. Licensed trustee businesses operate in Australia and can undertake the role of trustee of an Australian unit trust. The investment management function in relation to such a unit trust can be undertaken by a professional investment manager unrelated to the trustee.

VCLPs

VCLPs must be registered with Innovation and Science Australia (ISA). ISA must decide an application for registration within 60 days after receiving it.

Unit Trusts That Are Unregistered Managed Investment Schemes

There are no mandatory content requirements in relation to the offering of interests in unregistered managed investment schemes, provided that interests are only offered to persons who are “wholesale clients”. Offering documents must not contain misleading or deceptive statements (including by omission).

Unit Trusts That Are Registered Managed Investment Schemes

Interests in registered managed investment schemes offered to retail clients must be offered under a product disclosure statement (PDS). By contrast, interests in such schemes that are only offered to wholesale clients are not required to be offered under a PDS.

The content of a PDS is mandated under the Australian Corporations Act. It must disclose the rights, terms, conditions and obligations attaching to the interest, the significant taxation implications of such interest, and the fees and costs of the interest. PDSs are not required to be made publicly available but must be provided to all investors who acquire an interest in the relevant fund, before they acquire the interest. Notice that the PDS in use must also be provided to ASIC.

VCLPs

Primarily for commercial reasons, limited partnership interests are typically offered only to investors that are wholesale clients.

Wholesale Client and Retail Client Test

A person is considered a wholesale client if:

• the minimum amount payable for the relevant interest is at least AUD500,000; or
• they give the manager a certificate from a qualified accountant no more than six months before the offer is made certifying that the person has:
1. net assets of at least AUD2.5 million; or
2. a gross income for the previous two financial years of at least AUD250,000.

If a person is not a wholesale client, they are generally deemed to be a retail client.

Australia’s alternative fund taxation operates primarily through flow-through treatment, where trust income and gains are taxed at the investor level rather than at the fund level.

Taxation of MITs

Trusts qualifying as MITs must be managed by an AFSL holder, must be widely held (not closely held), and cannot control trading businesses. Qualifying MITs benefit from a 15% concessional withholding tax on distributions to foreign investors and deemed capital gains treatment thereby enabling the CGT discount for eligible Australian residents.

Taxation of AMITs

The AMIT regime adds to the benefits already afforded to MITs and provides enhanced flexibility through attribution-based taxation, rather than traditional distribution-based approaches. Under the AMIT rules, investors are taxed on income attributed to them on a “fair and reasonable basis” annually, regardless of actual distributions received. This framework eliminates streaming issues and provides greater certainty for fund managers in allocating different classes of income to investors. The trust itself bears no tax liability, provided all taxable income is attributed to investors ‒ creating operational efficiencies for complex fund structures.

Taxation of VCLPs and ESVCLPs

VCLPs provide flow-through taxation with full CGT exemption for eligible foreign venture capital partners on gains from EVCIs. ESVCLPs offer additional benefits, including non-refundable 10% tax offsets, revenue gain exemptions on EVCI disposals, and income exemptions for limited partners of Australian-resident general partners.

Taxation of CCIVs

CCIVs receive AMIT-equivalent tax treatment, with flow-through taxation for investors in sub-funds.

Funds are permitted to originate loans, except for funds structured as a VCLP or as an ESVCLP. The trustee and investment manager of a fund originating loans made to consumers may need to hold an Australian Credit Licence.

Trustees offering fund interests under the terms of a product disclosure statement should refer to ASIC’s Regulatory Guide 45 Mortgage schemes: Improving disclosure for retail investors (“RG 45”).

Funds can invest in non-traditional assets such as digital assets, consumer credit and other loan portfolios, cannabis and cannabis-related investments, and litigation funding – provided that:

• funds structured as unregistered managed investment schemes that are MITs do not control a trading business; and
• funds structured as VCLPs or ESVCLPs cannot engage in lending.

Cannabis

Investing in cannabis-related businesses is permissible, provided those businesses are appropriately licensed and cultivate, produce and distribute cannabis for medicinal and research purposes only. Investments in non-compliant businesses could risk the fund breaching proceeds of crime legislation or risk the operator breaching applicable fiduciary and regulatory obligations.

Careful due diligence and monitoring of cannabis-related investments are essential to funds investing in the sector.

Litigation Funding

Litigation funding is typically conducted through a pooled vehicle. Investors contribute capital to that vehicle, which is then deployed under contracts with or on behalf of claimants. These contracts entitle the vehicle to a share of relevant proceeds from the litigation (if any). Investors then receive distributions from the vehicle. If the vehicle is a managed investment scheme, it must comply with applicable statutory obligations.

In December 2022, the Australian government announced the commencement of new litigation funding regulations, the Corporations Amendment (Litigation Funding) Regulations 2022 (Cth). These regulations clarify that relevant litigation funding schemes are exempt from the managed investment scheme, AFSL, product disclosure and anti-hawking provisions of the Corporations Act.

In December 2022, ASIC also provided regulatory relief applicable to litigation funding arrangements and proof of debt arrangements and to litigation funding arrangements where the members wholly or substantially fund their legal costs under a conditional costs agreement. The relief expires on 31 January 2026, unless extended by ASIC.

Subsidiary funds can be used to segregate pools of assets held by the parent fund. The trustee of a parent fund may issue classes of units in the parent fund to investors – the economic features of which are referable to the performance of the applicable subsidiary fund. This approach is intended to ring-fence the rights and obligations of the subsidiary fund from those of other subsidiary funds and to provide an economic exposure to the subsidiary fund by the unit holder of the relevant class in the parent fund.

Where subsidiaries are used, the subsidiary itself should maintain the same tax profile of the holding entity to prevent an erosion of any tax advantages available at the holding-entity level.

There is no requirement to have an Australian-domiciled investment manager to manage an Australian-domiciled fund, provided the manager satisfies applicable Australian financial services licensing obligations. This may require the manager to obtain regulatory relief from ASIC.

Professional Australian trustee companies may be engaged to act as trustee of an unregistered managed investment scheme or as responsible entity of a registered managed investment scheme.

If a fund sponsor wishes to establish an Australian entity as manager or as trustee of an unregistered managed investment scheme, then an Australian proprietary limited company would typically be established. At least one director of such a company must live in Australia. Responsible entities of registered managed investment schemes must be Australian public companies. At least two directors of an Australian public company must normally live in Australia. All directors must apply for and obtain a director ID before their appointment.

Funds proposing to register in Australia as a VCLP or an ESVCLP must ensure that all general partners of the fund are residents of Australia or of a foreign country with which Australia has a double tax agreement in force.

If a fund wishes to obtain the benefits of the Australian MIT regime, an entity holding an AFSL must be engaged.

In general, there are no restrictions on the choice or location of service providers.

However, a party wishing to engage with the trustee of an unregistered managed investment scheme or with a general partner of a VCLP or an ESVCLP or with the responsible entity of a registered managed investment scheme should ensure that the trust deed or partnership agreement (as applicable) contains appropriate drafting to permit such an engagement.

Importantly, Australian law deems that – for the purposes of determining whether there is a liability to members of a registered managed investment scheme – the responsible entity of the scheme is taken to have done (or not done) anything that any service provider appointed by the responsible entity has done.

In relation to custodial services, Australian-domiciled custodians generally require an AFSL, subject to limited exceptions.

Entities subject to Australian AML laws must ensure compliance with those laws, regardless of whether any third-party providers are engaged to assist with KYC or other obligations.

Private Capital Market Governance

ASIC has indicated that in November 2025, it will issue six guidance documents relevant to alternative funds:

• ASIC report on Australia’s evolving capital markets;
• ASIC report on private credit surveillance;
• expert report on the future state of Australia’s capital markets;
• expert report on international comparison of data reporting and transparency in private markets;
• guiding principles for the private credit industry; and
• catalogue of regulatory guidance for the funds management sector.

ASIC has also indicated that these updates may include requirements relating to:

• disclosure of fund leverage and liquidity risk management;
• valuations, including obtaining and reporting independent loan valuations, with information on frequency, methodology and beneficiary;
• terminology used by the fund sponsor in relation to the features of the fund;
• remuneration and fees to make readily observable the true cost of managing the fund;
• related-party transactions; and
• conflicts management, including both conflicts of interest and conflicts of duty (including duty-duty conflicts of any counterparty to an AFSL holder).

It is anticipated that the updates will be relevant to the compliance, governance and some aspects of the operating processes of alternative fund managers. In response, alternative fund managers are preparing to update their processes accordingly.

Digital Assets

In September 2025, the Australian government released draft legislation in relation to digital assets. The proposed changes introduce two new financial products within the Corporations Act – namely, a “digital asset platform” and a “tokenised custody platform”.

Persons providing relevant financial services in relation to these new financial products will be required to hold an AFSL authorising them to do so. The general obligations applying to the AFSL holder will be relevant, including:

• providing the services efficiently, honestly and fairly;
• having in place adequate arrangements for the management of conflicts of interest;
• having available adequate resources to provide the services; and
• being subject to enforcement by ASIC.

In addition to the general obligations, the draft legislation proposes specific obligations to issuers of digital asset platforms and tokenised custody platforms, including:

• minimum standards made by ASIC for asset-holding functions and transactional and settlement functions;
• platform rules that deal with activities or conduct of persons in relation to the platform; and
• tailored disclosure obligations, including the requirement to give clients a Digital Asset Platform Guide or Tokenised Custody Platform Guide as a substitute for a product disclosure statement.

Promoters or sponsors of alternative funds established in Australia typically come from Australia.

To assist non-Australian promoters and sponsors, specific Australian regulatory relief is available on application to ASIC, subject to the regulator’s approval. This relief is targeted at promoters or sponsors regulated in the UK, the USA, Singapore, Hong Kong, Germany and Luxembourg who wish to do business in Australia. Promoters or sponsors from other jurisdictions may also apply to ASIC for regulatory relief.

Australian placement agents and similar capital-sourcing partners (including Australian feeder fund operators) operate in Australia and assist foreign fund promoters and sponsors in a range of contexts.

Unit trusts are the most commonly used legal structure by alternative fund managers in Australia, owing to their flexibility both in capital arrangements and permissible investments. They are widely used for real asset strategies, hedge strategies and credit strategies.

VCLPs and ESVCLPs are also commonly used for venture capital strategies raising capital from foreign investors. This is due to the full CGT exemption for tax-exempt foreign residents or foreign venture capital funds on gains derived from the disposal of eligible venture capital investments.

Individual personnel compensation or equity incentive arrangements can be accommodated regardless of the chosen fund structure.

There is an extensive regulatory regime applicable to alternative fund managers in Australia.

Alternative fund managers should consider whether they require an AFSL or whether they can rely on an exemption from that requirement. Some examples of exemptions are referenced in 3.1 Origin of Promoters/Sponsors of Alternative Funds.

If an AFSL is required, managers will typically need an authorisation to (at least) “advise” and “deal” in all the financial products relevant to the investment strategy for which the manager has responsibility. In addition, managers will need to consider broader obligations under corporations legislation, trust law, AML laws, competition law, foreign investment regulations, privacy laws, sanctions regimes and taxation laws, among other regulatory laws.

Trustees of funds owe fiduciary obligations to fund investors. The full scope of those obligations is typically sought to be attenuated through the constituent documents of the fund, as well as via disclosure and fully informed consent of investors.

Fund managers may owe fiduciary obligations to the trustee or to partners in the fund, depending on the terms of the applicable management agreement and the broader circumstances of the engagement. This duty may also be owed to investors.

Corporate Tax

Alternative fund managers in Australia are typically structured as Australian proprietary companies and subject to the standard corporate tax rate of 30% (or 25% for eligible small business entities with turnover under AUD50 million). Management fees, administration fees, and other recurring income are taxed as ordinary business income.

Foreign fund managers operating in Australia must consider the interaction between domestic taxation and their home jurisdiction obligations. Franked dividends paid to foreign shareholders will not be subject to further Australian tax. To the extent dividends are unfranked, Australian dividend withholding tax applies at 30% but this can be reduced to nil, depending on where the foreign shareholder is based and the ownership structure.

Goods and Services Tax (GST)

Australian fund managers face complex GST obligations that vary significantly based on their activities, client base, and fund structures.

Fund management services are generally subject to a 10% GST, making managers liable to charge GST on management fees, performance fees, and other advisory services. However, critical exemptions apply for services provided to widely held unit trusts and other qualifying investment vehicles. Services provided in relation to the “management of eligible investment business” may qualify for a GST exemption. This benefits managers of wholesale funds where the underlying investments qualify as “eligible investment business”.

Fund managers can often claim full input tax credits (100%) or reduced input tax credits (75% or 55%) on expenses incurred in providing these services. However, no input tax credits are available for expenses incurred to arrange acquisitions of interests in managed investment schemes, provide certain financial advisory services, or issue or deal in certain financial products.

Australia does not provide broad exemptions to prevent alternative funds with Australian managers from establishing a permanent establishment or taxable presence in Australia. However, several strategies are used to reduce the risk of a permanent establishment arising.

Distinctions Between Trustees and Managers

The most critical protection stems from the way tax residency for Australian trusts arises. Where an Australian entity acts solely as an investment manager (rather than a trustee) for a foreign fund, the fund itself escapes Australian tax residency. The manager provides services to the fund but in a way that does not create an agency relationship, which would otherwise result in a deemed permanent establishment.

Safe Harbours for Service Providers

Australian taxation law recognises that independent service providers do not necessarily give rise to permanent establishments for their foreign clients. Fund managers operating at arm’s length, charging market rates, and not holding decision-making authority over fund assets generally avoid creating permanent establishments for the funds they manage.

Australia’s extensive double tax treaty network provides further protections by raising the threshold at which permanent establishments arise. Many treaties include specific investment manager exclusions or higher thresholds that protect funds from inadvertent Australian tax exposure.

Despite these protections, risks remain where Australian managers exercise broad discretionary powers, hold fund assets, or operate beyond pure advisory roles. The Australian Taxation Office’s recent scrutiny of alternative fund structures suggests increased attention to substance-over-form analysis.

Structuring Considerations

It is not uncommon for fund managers to:

• establish clear contractual boundaries limiting their role to advisory services;
• ensure foreign trustees maintain ultimate control; and
• document decision-making processes to demonstrate the fund’s foreign tax residence and operational control.

Carried interest presents complex taxation issues depending on the manager’s role and structure. For general partners actively involved in fund management, carried interest may be treated as revenue income subject to ordinary tax rates rather than capital gains treatment. However, where managers can demonstrate genuine capital investment and passive holding characteristics, capital treatment may apply – potentially providing access to the 50% capital gains tax discount for individual taxpayers and eligible trusts.

From a regulatory perspective, managers are permitted to outsource their investment functions and business operations. From a contractual perspective, managers would be well advised to consider whether outsourcing is permitted under the terms of the manager’s engagement.

When outsourcing investment functions, the service provider will generally be required to comply with Australian financial services laws (among other laws) – including the obligation to hold an Australian Financial Services Licence – or to operate under an applicable exemption.

In relation to outsourced business operations, managers should consider that:

• custodians will typically provide financial services and so will need to comply with Australian financial services laws;
• administrators will typically provide accounting or valuation services and will need to consider applicable professional services laws; and
• managers who outsource any AML obligations, including KYC checks, will remain the reporting entity under the AML legislation and retain ultimate responsibility for AML compliance.

If a manager does not hold an AFSL and is not incorporated in Australia, there are no applicable local substance requirements. If a manager holds an AFSL, they must comply with the financial conditions of the licence. These include requirements relating to solvency, net assets and cash needs.

If the manager is an Australian incorporated proprietary limited company, then at least one director of such a company must live in Australia. If the manager is an Australian incorporated public company, then at least two directors of an Australian public company must normally live in Australia. All directors must apply for and obtain a director ID before their appointment.

If there is a change in control of the holder of an AFSL, the licensee needs to notify ASIC of the change within ten business days after the change.

Corporate re-structuring of fund managers and their parent companies may involve changes to staff. Consideration should be given to whether any staff member is a “responsible manager” for the purposes of the AFSL held by the fund manager or parent company. If a responsible manager will no longer be available to provide services to an entity that holds an AFSL, consideration should be given to appointing a replacement. ASIC must be notified of both the retirement and the appointment of any responsible manager.

Australia does not have legislation that specifically regulates AI. Nonetheless, AI is widely used for investment purposes and for operational or compliance purposes.

In relation to such usage, a significant number of Australian laws apply in relation to potentially harmful uses of AI within investment management. Relevant laws and harmful use cases include the following.

• AI system is not sufficiently secure – laws relating to directors’ duties are relevant, including the duty to exercise powers with due care and diligence in order to assess and govern risks to the organisation (including non-financial risk).
• Misleading outputs or statements – Australian consumer and other laws that prohibit engaging misleading and deceptive conduct and making false and misleading representations may apply, for example, if:
1. outputs are provided by AI and then included in a disclosure document issued by a fund sponsor; or
2. a fund sponsor makes:
1. misleading representations or remains silent as to when AI is being used; or
2. misleading statements as to the performance and outputs of the AI systems.
• Harmful outputs – trust laws applying to fiduciaries and the laws of negligence may apply in relation to harmful outputs produced by AI if the person using the output owed relevant duties to the person who suffers loss or harm as a result of the output.
• Misuse of data or infringement of model or system – privacy laws, IP laws (including copyright), duties of confidence and contract protect the use, reproduction and/or disclosure of data (including training data, input data, and outputs) and the model or system without the requisite consents or rights. Privacy laws restrict the collection of personal information for an improper purpose and impose transparency and data minimisation requirements on the handling of personal information.
• Bias, incorrect or poor-quality output – privacy laws impose quality and accuracy obligations that may apply to training and input data (that is personal information) and outputs (where new personal information is generated).

Given the above, AFSL holders must:

• do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly;
• have adequate technological resources to provide the financial services covered by the licence and to carry out supervisory arrangements (for example, of representatives of the licensee); and
• have adequate risk management systems.

Each of these obligations is relevant to the manner in which an AFSL holder may choose to engage with AI.

Within this context, the Australian government issued the Voluntary AI Safety Standard (VAISS) in September 2024. The VAISS includes ten voluntary AI guardrails to help organisations deploy and use AI systems within the bounds of existing Australian laws, emerging regulatory guidance, and community expectations.

The guardrails are as follows:

• establish, implement and publish an accountability process including governance, internal capability, and a strategy for regulatory compliance;
• establish and implement a risk management process to identify and mitigate risks;
• protect AI systems and implement data governance measures to manage data quality and provenance;
• test AI models and systems to evaluate model performance and monitor the system once deployed;
• enable human control or intervention in an AI system to achieve meaningful human oversight;
• inform end users regarding AI-enabled decisions, interactions with AI, and AI-generated content;
• establish processes for people impacted by AI systems to challenge use or outcomes;
• be transparent with other organisations across the AI supply chain about data, models and systems to help them effectively address risks;
• keep and maintain records to allow third parties to assess compliance with guardrails; and
• engage stakeholders and evaluate their needs and circumstances, with a focus on safety, diversity, inclusion and fairness.

Adopting these guardrails will create a foundation for the safe and responsible use of AI. It will make it easier for any organisation to comply with any potential future regulatory requirements in Australia and emerging international practices and will help to uplift any organisation’s AI maturity.

The Privacy and Other Legislation Amendment Act 2024 (Cth) introduces significant new transparency requirements for automated decision-making that will take effect on 10 December 2026.

The key requirements are as follows.

• Enhanced privacy policy disclosure – if entities use automated decision-making, they must include certain information in their privacy policies. Specifically, businesses must update privacy policies to disclose the types of personal information used, decisions made by computer programs, and human-assisted decisions influenced by automation.
• Detailed information requirements – organisations will need to include in their privacy policies:
1. the types of personal information used and whether decisions are fully automated or substantially assisted by AI; and
2. details when using automated decision-making that impacts individuals’ rights or interests.
• New individual rights – the Australian government has accepted a recommendation to create a new right for individuals to request information about substantially automated decisions that impact them. This relates to substantially automated decisions with legal or similarly significant effect.

Implementation Timeline

The new obligation to disclose the use of personal information for automated decision-making will commence in December 2026.

Preparation Requirements

Organisations should prepare by conducting audits of current and planned automated decision-making technologies, assessing their impact on individual rights, and updating privacy policies.

This represents part of the most substantial change to Australia’s privacy regime since its inception. Specifically, the focus is on increasing transparency around how automated systems make decisions that affect individuals.

Investors in Australian-focused alternative funds include Australian and international sovereign wealth funds, superannuation funds, endowments and other institutional investors, family offices, wealth platforms, and high net worth individuals.

The Australian Private Capital 2025 Yearbook, published by Preqin, specifies that:

• Australian-focused private capital assets under management as at September 2024 totalled AUD139 billion – of which, AUD65 billion is in private equity, venture capital and private credit funds;
• the proportion of investors from Asia has doubled in the five years prior to the date of the report;
• family offices have overtaken superannuation funds as the biggest cohort of active private capital investors by number;
• family offices now make up 40% of private capital investors (up from 10% four years ago); and
• regardless of their geographic focus, Australian-domiciled managers experienced a 14% year-on-year decline in capital raised in 2024 compared to 2023 – although this was a decline, the extent of the decline is lower than the decline experienced by fund managers based in North America (-26%), Asia (-49%), and the rest of world (-89%).

Australian superannuation funds can be a particular source of interest to foreign managers. Trusted relationships with those funds are built by managers over many years.

Subject to the comments that follow, side letters are widely used. There are no restrictions on what they cover.

Side letters in the context of registered managed investment schemes are not widely used. One reason for this is the responsible entity of a registered managed investment scheme is subject to a statutory obligation to treat members who hold interests in the fund in the same class equally.

The marketing of alternative funds to Australian investors requires the person who engages in the marketing to hold an AFSL or to benefit from a relevant exemption from the requirement.

The conditions on which a person holds an AFSL, or benefits from a relevant exemption, will specify whether marketing by the person to wholesale clients or to retail clients (or to both) is permitted. Local investors, both wholesale clients and retail clients, are permitted to invest in alternative funds established in Australia.

Fund product issuers and distributors must comply with the financial product “design and distribution obligations” laws. Generally, this requires those issuing interests to identify the class of retail clients that comprise the “target market” for the interests (that is, persons in respect of whom the interest is consistent with their likely objectives, financial situation and needs) and create a target market determination for the interests. The person who made the target market determination must take reasonable steps that will, or are likely to, result in distribution of the interests being consistent with the determination.

In addition to the rules specified in 4.3 Marketing of Alternative Funds to Investors, interests in funds marketed to investors who are retail clients must be offered under a regulated product disclosure statement (PDS). The content of a PDS is specified under Australian legislation and must include features and benefits of the product, risks of the product, fees and costs, and ESG-related disclosures. Notice must be lodged with ASIC within five business days of a PDS being first given to a retail client.

Interests in funds that are marketed to investors who are wholesale clients are not required to be offered under a PDS. An information memorandum (IM) is typically used. The content of an IM is not prescribed by law but the issuers must ensure they do not make false or misleading statements nor engage in misleading or deceptive conduct.

Those involved in the marketing of fund interests (whether via a PDS, an IM or via other marketing collateral) must not make false or misleading statements or engage in misleading or deceptive conduct. In relation to these obligations, ASIC has issued the following regulatory guidance:

• Regulatory Guide 234 Advertising financial products and services (including credit): Good practice guidance (“RG 234”);
• Regulatory Guide 53 The use of past performance in promotional material (“RG 53”); and
• Regulatory Guide 170 Prospective financial information (“RG 170”).

RG 234, RG 53 and RG 170 are referenced broadly within the industry as part of approval processes followed before marketing collateral is issued.

Alternative investment managers can potentially implement a range of distribution strategies focused on high net worth or retail investors in Australia. Some of these are outlined here.

For high net worth or wholesale clients:

• direct distribution – via family offices and private wealth managers who service ultra high net worth families, or via private client teams at major banks, or via independent financial advisers specialising in alternative investments;
• institutional platforms – multi-manager platforms providing capital raising services, as well as private wealth platforms and dealer group platforms that provide access to alternative strategies;
• placement agents who may provide bespoke capital raising, strategic advice and related services; and
• self-managed super funds that allow members to access alternative investments, as well as model portfolio providers who may service those funds.

For retail clients:

• financial adviser networks – including fee-for-service financial planners, as well as stockbroking and accounting firms with licensed financial advice businesses;
• digital platforms – online investment platforms that offer alternative investments to retail clients, including robo-advisers;
• traditional retail channels – including master trust and wrap platforms offered by major institutions; and
• listed investment companies or listed investment trusts.

Australia has a well-developed private placement industry and agents are widely engaged by foreign fund sponsors. Placement agents and similar service providers are usually familiar with all Australian regulatory rules relating to their businesses, including the holding of a relevant AFSL.

Foreign managers who are considering engaging with an Australian placement agent typically consider applicable exemptions from any obligation to hold an AFSL. Licensing relief may be necessary or desirable, including on the basis outlined in 3.1 Origin of Promoters/Sponsors of Alternative Funds.

Use of Australian placement agents and similar service providers by foreign managers is common. Placement agents are regulated by ASIC and typically hold an AFSL authorising the placement agent to (at least), advise and deal in a range of financial products.

If personnel of the fund manager are to be compensated for sales efforts, then the applicable commercial arrangements with the placement agent would need to be considered and potentially discussed before agreeing terms.

It is not uncommon for placement agents to require exclusivity in Australia. If a manager has existing relationships with capital sources in Australia (or elsewhere), then the manager may request the placement agent to not cover those capital sources. In these circumstances, the manager would not be required to remunerate the placement agent in connection capital raised from those sources. The manager’s personnel could then be compensated for sales efforts in connection with those sources.

If the manager’s personnel are providing the financial service of giving “financial product advice”, or “dealing” in relation to financial products, then consideration should be given to whether an appropriate AFSL authorises those services or whether an applicable exemption is available.

Australian investors in alternative funds face differential tax treatment based on their investor classification, with distinct rules applying across investor types.

Corporate Investors

Corporate investors are taxed at the standard company tax rate of 30% on their proportionate share of fund income and capital gains. They receive full flow-through treatment without access to CGT discount concessions. Franking credits from investments in Australian companies flow through to corporate investors, providing tax relief. The effect is generally that no further taxation applies at the level of the corporate investor.

Individual Investors

Individual investors face marginal tax rates up to 47% (including the Medicare levy) on fund income distributions. Capital gains from fund investments held for more than 12 months qualify for the 50% CGT discount, effectively reducing the maximum rate to 23.5%.

Superannuation Funds

Complying superannuation funds are entitled to concessional taxation at 15% on both income and capital gains, with capital gains entitled to a 33⅓% CGT discount first. In the pension phase, superannuation funds may qualify for tax-free treatment on investment earnings.

Foreign Investors

Non-resident investors benefit from the managed investment trust withholding tax regime, paying only 15% final withholding tax on eligible fund payments compared to the standard rate of 30%. Capital gains on non-taxable Australian property are generally exempt ‒ although recent legislative proposals seek to expand the CGT net for foreign investors disposing of interests in land-rich Australian entities.

Sovereign Wealth Funds and Foreign Pension Funds

These entities may qualify for specific tax concessions, depending on the jurisdiction of the fund under Australia’s tax treaty network, including exemptions from withholding tax and CGT.

Australian alternative funds generally qualify for double tax treaty relief ‒ although eligibility requires careful analysis of specific treaty provisions and fund structures.

Treaty Eligibility and Limitation of Benefits Clauses

Resident trusts should generally qualify to access the benefits of a double tax treaty between Australia and a foreign jurisdiction. However, this must be considered on a jurisdiction-by-jurisdiction basis, as Australia’s treaty network has been updated to prevent inappropriate access to treaty relief through limitation of benefits clauses.

These clauses may restrict benefits where funds have significant foreign ownership. These clauses examine:

• the nature of the fund’s activities (active versus passive);
• investor composition and residence; and
• substance requirements in the treaty jurisdiction.

By way of example, the interposition of an Australian entity between a foreign investor and foreign operations may be for the purposes of accessing relief under Australia’s tax treaty network.

Nevertheless, Australian resident trusts ‒ including those structured as managed investment trusts (MITs) or attribution managed investment trusts (AMITs) ‒ typically satisfy treaty residency tests, as they are established and managed in Australia.

Beneficial Ownership Requirements

Many of Australia’s treaties require the fund to be the “beneficial owner” of income to claim treaty benefits. This can be problematic where funds operate as conduits passing income to underlying foreign investors. However, Australian alternative funds that retain discretionary investment powers and bear economic risks generally satisfy these beneficial ownership requirements.

Specific Treaty Provisions

Some treaties contain dedicated investment fund articles, such as the Australia‒UK double tax agreement, providing clearer pathways for fund treaty access. These provisions typically require funds to be:

• established and regulated in the treaty jurisdiction;
• operated primarily to manage investments for third-party investors; and
• subject to appropriate regulatory oversight.

MIT Withholding Tax Integration

The MIT regime operates alongside treaty benefits, with funds generally entitled to the more favourable lower rate. For foreign investors in Australian MITs, this often means choosing between the 15% MIT withholding rate and potentially lower treaty rates.

Australia has implemented both the FATCA and CRS regimes that significantly impact alternative funds, creating comprehensive reporting obligations for US and international tax transparency purposes.

FATCA Implementation

Australia implemented FATCA through the intergovernmental agreement Model 1 framework, making Australian alternative funds “foreign financial institutions” subject to US reporting requirements. Fund managers must:

• register funds with the Internal Revenue Service (IRS) and obtain “global intermediary identification numbers”;
• identify US persons holding direct or indirect interests exceeding specified thresholds;
• report annually on US account holders to the Australian Taxation Office, which transmits data to the IRS; and
• implement due diligence procedures for new and existing investors.

CRS Framework

The CRS applies to alternative funds as “financial institutions” under Australian domestic legislation. Key obligations include:

• identifying account holders’ tax residency through self-certification procedures;
• collecting “tax identification numbers” for reportable persons;
• annual reporting to the Australian Taxation Office on foreign tax residents from participating jurisdictions; and
• maintaining detailed records of due diligence procedures and investor classifications.

Due Diligence Requirements

Both regimes require funds to implement robust KYC procedures, including:

• collecting self-certification forms from all investors;
• conducting reasonableness tests on investor declarations;
• maintaining documentation supporting tax residency determinations; and
• regularly reviewing investor status changes.

Thresholds and Exemptions

Although the regimes provide exemptions from reporting for small funds, alternative funds typically have significant assets under management rendering them ineligible for reporting relief. Limited exemptions exist for certain local client bases, but most institutional alternative funds fall within full reporting scope.

Compliance Challenges

Alternative funds face particular difficulties with:

• complex ownership structures involving multiple intermediaries;
• determining beneficial ownership through investment chains;
• managing reporting for feeder fund arrangements; and
• co-ordinating compliance across multiple fund vehicles.

Penalties and Enforcement

Non-compliance risks include FATCA withholding taxes (30% on US-source payments), CRS penalties under domestic law, and potential exclusion from global financial systems.

The regimes create significant operational overhead for alternative fund managers, requiring dedicated compliance resources and systems integration.

The Anti-Money Laundering and Counter-Terrorism Financing Act (2006) (Cth) (the “AML/CTF Act”) is the primary legislation, which is supported by rules issued by the Australian Transaction Reports and Analysis Centre (AUSTRAC), the national financial intelligence unit and AML/CTF regulator.

The AML/CTF (counter-terrorism financing) regulations apply to reporting entities, which can include product issuers and fund managers. Key obligations on reporting entities include:

• customer due diligence – including the identification of a customer (and its beneficial owners), verification of customer identity and conducting ongoing monitoring of customer transactions and keeping KYC information up-to-date. Reporting entities must take extra steps with higher-risk persons (eg, customers who invest via complex offshore structure) including verifying sources of funds or wealth and applying more intensive and frequent transaction monitoring);
• record-keeping – maintenance of detailed records of transactions, customer identification and compliance activities for at least seven years;
• reporting requirements – including suspicious matter reports for transactions suspected of involving money laundering or terrorism financing, threshold transaction reports for cash transactions over AUD10,000, and international funds transfer instructions for international wire transfers;
• AML/CTF programmes – reporting entities must prepare and regularly review written programmes that document measures identified in the preceding paragraphs to identify and mitigate money laundering and terrorism financing risks specific to their business.

Data collection in Australia is regulated under the Privacy Act 1988 (Cth). The following summary outlines the main obligations relevant to alternative fund managers under the Privacy Act 1988 (Cth).

Collection and Notification

Entities must collect personal information lawfully and fairly, only when necessary for their functions or activities. They must take reasonable steps to notify individuals about the collection, including the purposes for collection, how the information will be used and disclosed, and how individuals can access and correct their information.

Use and Disclosure

Personal information can only be used or disclosed for the primary purpose it was collected, or for related secondary purposes that individuals would reasonably expect. Disclosure to third parties generally requires consent unless specific exceptions apply (such as law enforcement purposes or where required by law).

Data Quality and Security

Entities must take reasonable steps to ensure personal information is accurate, up-to-date, complete, and relevant. They must also implement reasonable security safeguards to protect personal information from misuse, interference, loss, unauthorised access, modification, or disclosure.

Access and Correction

Individuals have the right to request access to their personal information and seek corrections if it is inaccurate, out-of-date, incomplete, irrelevant, or misleading. Entities must respond to these requests within reasonable timeframes and generally provide access unless specific exceptions apply.

Cross-Border Disclosure

Before disclosing personal information overseas, entities must take reasonable steps to ensure the overseas recipient does not breach the Privacy Act 1988 (Cth) or to ensure the individual consents to the disclosure.

Data Breach Notification

Entities must notify the Office of the Australian Information Commissioner, as well as individuals affected by eligible data breaches that are likely to result in serious harm.

Anonymity and Pseudonymity

Where practicable, entities must give individuals the option to deal with them anonymously or by using a pseudonym. These obligations apply primarily to private sector organisations with an annual turnover of AUD3 million or more ‒ although there are some exceptions and specific rules for different types of entities.

Material changes to the AML/CTF laws in Australia will take effect in 2026. These changes will apply in phases:

• from 31 March 2026 – for entities already subject to the AML/CTF regime; and
• from 1 July 2026 – for newly regulated “tranche 2 entities”.

Relevantly in relation to the alternative funds industry, this includes persons who assist in equity or debt financing relating to:

• a body corporate (or proposed body corporate); or
• a “legal arrangement” (or proposed legal arrangement) (eg, a fund structured as a trust, or a partnership.

What follows is a summary of the key features of the changed AML/CTF laws.

Risk Assessments

As of 2 October 2025, an obligation to undertake a risk assessment is not expressly stated in the AML/CTF Act and inferred from disparate requirements in the legislation. The new regime expressly requires that an AML/CTF programme documents a reporting entity’s risk assessment.

The assessment must identify and assess the risks associated with money laundering, terrorism financing and proliferation financing that it may reasonably expect to face in providing designated services to its customers. It must be appropriate to the nature, size and complexity of the reporting entity’s business.

The risk assessment is then used to inform the policies, procedures and systems documented in a reporting entity’s AML/CTF programme. The risk assessment must be reviewed every three years and when a review trigger occurs, including if there is a significant change to any of the facts in the risk assessment or if AUSTRAC communicates to the reporting entity information that identifies or assesses risks associated with them.

The reporting entity must update its risk assessment to address any issues identified by a review. They must not provide a designated service if they do not review their risk assessment and keep it up-to-date.

AML/CTF Policies

As at 2 October 2025, the legislation requires an AML/CTF programme to include “Part A” and “Part B” ‒ details of which are set out in the AML/CTF rules. Reporting entities are likely to have AML/CTF policies that are prepared separately and support their AML/CTF programme.

Under the new AML/CTF laws, the prescriptive obligation for AML/CTF programmes to be structured into “Part A” and “Part B” has been removed. Instead, the programme must consist of the reporting entity’s money laundering/terrorism financing risk assessment and AML/CTF policies that:

• appropriately manage and mitigate money laundering/terrorism financing risks that the reporting entity may reasonably face in providing designated services; and
• ensure the reporting entity complies with the AML/CTF rules, regulations and the AML/CTF Act.

A reporting entity may nevertheless retain the existing “Part A” and “Part B” structure of its programme, provided that the substance of the programme is updated ‒ as necessary ‒ to ensure the requirements under the new AML/CTF regime.

In summary, the AML/CTF policies must specify procedures regarding:

• identification of significant changes to “risk factors” that are the basis for a reporting entity’s money laundering/terrorism financing risk assessment (see above);
• carrying out customer due diligence in accordance with the AML/CTF Act;
• reviewing and updating AML/CTF policies in response to a review of the entity’s money laundering/terrorism risk assessment or in response to any other circumstances specified in the AML/CTF rules; and
• reviewing the AML/CTF programme on a regular basis (of at least three years).

The reporting entity must include provisions in their AML/CTF policies addressing the following:

• ensuring its governing body is sufficiently informed of the risks of money laundering, financing of terrorism and proliferation financing that the reporting entity may reasonably face in providing its designated services;
• designating an AML/CTF compliance officer for the reporting entity;
• designating one or more senior managers of the reporting entity as responsible for approving the policies and the AML/CTF risk assessment of the reporting entity;
• undertaking employee due diligence on potential employees who will perform functions relevant to the reporting entity’s obligations under the AML/CTF Act;
• providing AML/CTF training to employees; and
• on the conduct of independent evaluations of the AML/CTF programme, which must be appropriate to the nature, size and complexity of the entity and conducted at least once every three years.

Customer Due Diligence

As of 2 October 2025, the requirements for conducting customer due diligence are found in the AML/CTF rules and not under the AML/CTF Act. They include: 

• a requirement for initial customer due diligence;
• a requirement for ongoing customer due diligence; and
• in relation to the requirement for initial customer due diligence, an outcomes-focused approach to establish:
1. the customer’s identity (eg, that the customer is the person they claim to be);
2. the identity of the customer’s agents and beneficial owners;
3. whether the customer is a politically exposed person (PEP) or sanctioned; and
4. information about the nature and purpose of the customer’s business relationship with the reporting entity.

Initial customer due diligence

For all customer types, a reporting entity must establish, on reasonable grounds:

• the identity of the customer;
• the identity of any person on whose behalf the customer is receiving the designated service;
• the identity of any person acting on behalf of the customer, as well as their authority to act;
• identity of any beneficial owners (if the customer is not an individual);
• whether the persons referred to in the preceding points are PEPs or designated for targeted financial sanctions;
• nature and purpose of business relationship or occasional transaction; and
• any other matters prescribed by the AML/CTF rules.

Simplified customer due diligence or enhanced customer due diligence requirements may apply, depending on whether the customer relevantly presents a low or a high money laundering/terrorism financing risk.

Ongoing customer due diligence

A reporting entity must monitor its customers to appropriately identify, assess, manage and mitigate the risks of money laundering/terrorism financing that the reporting entity may reasonably face in providing designated services. In relation to this overarching obligation, the core requirements for ongoing customer due diligence under the new regime are:

• suspicious matter reports – monitor for unusual transactions and behaviours that may give rise to a suspicious matter report (the existing obligation to submit suspicious matter reports continues under the new regime).
• risk assessment reviews – for business relationships, review and update money laundering/terrorism financing risk assessments when:
1. significant changes occur to relevant matters in the relevant risk identification process;
2. unusual transactions or behaviours are detected; and
3. in circumstances specified in the AML/CTF rules;
• KYC information updates – review, update, and reverify KYC information:
1. at a frequency appropriate to the customer’s money laundering/terrorism financing risk level;
2. when doubts arise about existing KYC information; and
3. in circumstances specified in the AML/CTF rules;
• certain customers who received a designated service before 12 December 2007 and who already have a business relationship with a tranche 2 entity before 1 July 2026 (ie, pre-commencement customers) – monitor for significant changes in business relationship nature/purpose that could raise the money laundering/terrorism financing risk to medium or high; and
• additional requirements – comply with any other requirements specified in the AML/CTF rules, including the requirement to review, update and reverify KYC information if a customer becomes a PEP.