Responsible Entities (REs) play a critical role in Australia’s fund management industry by ensuring funds operate effectively, in line with investor mandates and in accordance with the law. REs act as fiduciaries, prioritizing investor interests, a role formalised under the Managed Investments Act 1998 following past fund collapses. This legislation introduced the Single Responsible Entity model, consolidating asset holding and management duties. REs must be Australian companies with an AFSL and are regulated under the Corporations Act, which outlines their compliance obligations, especially for retail investors.
How many REs?
As of mid-2025, we estimate there were approximately 400 registered REs collectively overseeing approximately 3,600 registered managed investment schemes in Australia, holding nearly $2 trillion in managed fund assets. A recent ASIC review found 50 REs alone were responsible for 45% of all registered managed funds and 47% of all registered managed fund assets[1]. Assuming a power-law distribution whereby the largest REs manage a disproportionately large share of schemes and assets, and coupled with our understanding of the RE landscape, Australia’s financial service industry has a long tail of REs managing a small number of funds, and many acting as RE for only one scheme.
Objectively, regulatory oversite should be equally applied to all REs, but the collapse of the First Guardian and Shield Master Funds, resulting in more than 12,000 Australians potentially losing $1.2 billion in retirement savings, shows invested monies can be misused or redirected into unrelated ventures for significant periods of time without triggering alarms. First Guardian and Shield Master Fund both used Falcon Capital Limited, an associated entity, as RE.
While this is a high profile example of where things can go dramatically wrong, at the smaller (and larger) end ASIC has diligently pursued various REs for non compliance. Between July 2022 and June 2023, ASIC:
- prosecuted 51 companies for failing to lodge financial reports, hold AGMs, or maintain directorship standards;
- issued over $800,000 in penalties, with fines ranging from $2,000 to $123,000; and
- publicly named and shamed non-compliant entities in press releases[2].
The case for going external
We believe the broader landscape shows a case for smaller asset managers to consider appointment of an external RE with specialist skills and a proven track record. Many fund managers appoint external REs to enhance transparency and allow them to focus on their passion and forte - investment management. The independence of an external RE also boosts trust among investors and regulators, especially for smaller managers lacking internal resources. An external RE also creates a clear separation from the investment manager to avoid conflicts of interest, either real or perceived as highlighted by the First Guardian and Shield Master Fund case.
But is it all too hard?
Appointing an external RE initially involves due diligence by the existing RE, and assuming all is in order, can prompt its voluntary retirement. This then sets in train a mechanical but regulated process which includes a unitholder vote, consents and ASIC lodgements. In aggregate these steps take time and a significant amount of work. For many scheme operators this transition will be distracting in the least, if not overwhelming – and just ‘all too hard’. However, scheme operators should also consider the optimal future state of their operation, which in most cases will lend itself to an external RE. In short, for serious operators we believe it’s worth the effort.
When assessing potential external REs, scheme operators should also ask about transition services that can be provided by established REs to guide scheme operators – and unitholders – through the transition process, and thus minimise stress and distraction. Experienced external REs can play a significant role supporting scheme operators with a transition, using tested processes, templates and project governance.
The other consideration, particularly for small or single scheme operators, is selecting an external RE that best fits with the culture and operational procedures of their firm and asset types held in their funds. Here, the big end of town might not necessarily be the best fit – so right-sizing is important given the intention for a long term business partnership.
Ultimately, a well-chosen external RE enhances transparency, regulatory confidence, and investor protection. And from a more commercial perspective, an external RE will allow investment managers to stick to what they do best and allow a specialised business partner to provide the necessary governance, counsel and protection for them, and most importantly, their investors.
For fund managers looking for more information, please contact Alan O’Brien, Relationship Manager, Trustee Services.
alan.obrien@bennelongfunds.com
0432 473 139
1. ASIC Media Release, June 2025
2. RSM Global, January 2024
