Make ratings available to retail investors
Corporate bonds are a relatively simple product, but investors need to have direct access to ratings information, according to Shannon Finch, partner at King & Wood Mallesons.
Finch's comments follow the Government's release of the draft legislation aiming to make corporate bonds more easily available to retail investors.
According to Finance Minister Penny Wong, the new legislation would cut red tape for mum and dad investors and require Australian firms to publish simpler prospectuses to raise retail debt.
Finch, who worked with the Treasury on the draft for the past two years, is a big supporter of the reform.
"Australian retail investors are very heavily weighted towards equities, dramatically out of line with any of the other developed nations in the world," Finch said. "Particularly with the ageing population, people need to be looking at their investment portfolios and looking at a slightly more defensive mixed of assets - and most are underweight fixed income."
She said while using prospectuses is a positive thing, it is a pity the Government did not take steps to make external information about these companies available to retail investors.
"There are reasons why we should be encouraging retail investors to look at prospectuses and make them useful documents - they are intended to have the same flexibility as the short-form product disclosure statements," Finch said.
"However, it is disappointing that ratings information is not available to retail investors."
Finch said educating retail investors about different types of credit, risk profiles and companies was essential if they were to gain easy access to Australian firms.
"It is pretty much left to risk disclosure [from companies], rather than having that external perspective as well that helps explain a company's offering," she said.
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