What risk management procedures are in place to protect investor funds

There are three core risk management mechanisms that Wholesum applies to its investment activities.

Risk management via asset diversification strategies

Wholesum seeks to diversify the investment assets across a number of parameters. Wholesum diversifies the holdings of assets based on a range of factors that could affect fund performance.

The factors include:

  • Currency risk – Wholesum’s fund is denominated in Australian Dollars, if the Australian currency depreciates against investments in other countries, then the value of those investments may fall and vise-versa. Wholesum’s Fund invests in assets in a variety of currencies so an adverse value change in one currency doesn’t drastically affect the entire fund.
  • Concentration risk – a range of listed and unlisted assets are invested to avoid concentration of risk within any single asset type. For example, if Wholesum placed all its investor funds into the US stock market, chances are that an economic downturn will impair the entire Fund. To address this, Wholesum combines unlisted assets (such as small and medium-sized enterprise funds) that are largely uncorrelated with the returns of listed assets with major listed market assets (such as ethical stock ETFs listed with the New York Stock Exchange).
  • Liquidity risk – asset diversification into long and short duration assets help manage liquidity risk. Listed markets assets provide high liquidity as shares can be bought and sold on a stock market, while unlisted funds usually require funds for longer duration. To optimise short-term returns, Wholesum includes assets that provide regular payment returns (such as the fixed income nature of small and medium-sized enterprise and microfinance financing) and longer term value creation assets such as ETFs comprising value stocks.
  • Country risk – economic and political context of any given country can affect the performance and value of assets. To counter the risk of all funds being affected in any one location, Wholesum diversifies fund exposure across a number of developed and emerging market countries. Investing in both developed and developing countries help to manage investing risks in each region. For example, countries such as Australia and the United States among developed markets may be affected by similar geopolitical risks (such as the banking system crisis in early 2023 or the Ukraine-Russia war). Meanwhile, the economies in emerging markets such as Indonesia and Jordan may not be affected by these factors to the same extent.
  • Fund manager risk – As a “Fund of Funds” that invests in a range of managed funds, crowdfunding platforms and ETFs, Wholesum must diversify the risk of management capabilities across a larger number of organisations, asset classes and geographies. As no single fund manager can capably manage every conceivable asset class in every region, Wholesum allocates funds across different managers to reduce the risk that any given institution or manager performs below expectations.

Risk management via specialist governance oversight

Wholesum runs a monthly governance forum to decide on its investment portfolio allocation. This forum, also known as the Investment Committee. The committee conducts thorough research, analyses market conditions, and evaluates potential risks and rewards associated with various investment options. By diversifying investments across different asset classes and conducting ongoing monitoring, the committee manages investment risk and strives to optimize returns while mitigating potential losses.

Risk management within regulatory compliance structures

As a unregistered investment scheme, Wholesum’s fund management structure, as required under ASIC regulations, provides important risk management structures. The key elements are outlined below:

  • Investor funds are overseen by a Trustee (Boutique Capital). Any investment decisions that Wholesum makes are effectively reviewed by the Trustee for compliance against the law and Wholesum’s own investment mandate via the Information Memorandum. Note, the Information Memorandum is what binds Wholesum and its investors contractually and so must be followed for all fund activities.
  • Investor funds are secured by and overseen by the Custody (Boutique Capital) who releases funds for investment when the appropriate compliance and contractual obligations are fulfilled.
  • The Administrator (Boutique Capital) also undertakes fund accounting to ensure the reported values for the fund and unit holder’s investments are accounted for.