What would happen if SmartShares went belly u

[deniz]

Hey all,

I'm just about to invest in the US 500 fund with smartshares, for the long term, and am curious as to what would happen if SmartShares the company were to become bankrupt or otherwise insolvent?

I don't really understand enought about the legals of things governed by the FMA. Anyone have any info to share, or can link me to something relevant?

Thanks.

Edit belly up, not belly u.

Edit: reading the product closure brochure, they state this:

The Scheme is a managed investment scheme under
the Financial Markets Conduct Act 2013. To protect the
interests of investors, the Scheme’s investments are
held by independent custodians, while our operations
are supervised by an independent supervisor, Public
Trust. The Scheme is governed by a master trust
deed between the supervisor and us, and each fund is established as a separate trust.

 

[pcdweller]

@deniz The theory is that the investments the independent custodians and the Public Trust supervises them, and therefore if NZX went belly up you would get your money back. Kiwisaver schemes operate under a similar arrangement. The money you give them to buy the units should never go into an account controlled by them, and your investment should be backed by a trust owning exactly that number of shares in each company.

It is worth noting that this is what happens in theory. Often when a company goes under you find out that what was supposed to have happened didn't. Many times companies have used customers money trying to prevent a collapse. Probably more than a few times it has been successful, but you don't hear about them.

Personally the risk of the NZX failing doesn't rank high on my list of worries.

 

[resjudicata]

@deniz If the sp500 tanked, you'd see losses.

If NZX / smart shares failed, you'd get your money back as NZX is not a part of sp500

 

[christopherinla]

@deniz Just make sure any investment you do is in your name, not the company's (this pretty much goes for anything out there).

 

[deniz]

@christopherinla You just buy into the fund directly with Smartshares, so it's hard to know who owns what beyond that.

 

[joshua1998]

@deniz Have you read their PDS? It explains the situation very clearly. You remain the beneficial owner of the investment - the investment is held under the name of the custodian (either BNP Paribas or JBWere, depending on the fund). This arrangement is supervised by Public Trust and the custodians are licensed and regulated by the FMA, with requirements including daily reconciliation of client funds, six-monthly client reporting and annual independent audits.

 

[deniz]

@joshua1998 Yes, as per my second edit above, after my comment here .

 

[loveneverfailshim]

@deniz Probably lose your money. Their income model is based on service charges, so if they did go under, it's more then likely the markets tanked or members all pull their money for some reason.

 

[resjudicata]

@loveneverfailshim No the assets are held by a custodian not smartshares

 

[loveneverfailshim]

@resjudicata Sweet