Pooled Development Funds (PDFs)

Pooled Development Funds (PDFs) invest in shares of small to medium Australian companies.

Although most of the investments PDFs make are in unlisted companies, some PDFs also hold shares in listed companies.

PDFs were established through the Pooled Development Act (1992) to encourage investment in small and medium-sized Australian companies. 

Because these companies are normally in the formative stage of development, most PDFs are considered high risk investments.

Investments in smaller companies can produce attractive returns but take time to mature, and prices may be volatile in the short term, therefore PDFs are generally recommended for investors with at least a 5 year time horizon.

Because they provide high risk capital to growing companies, PDFs enjoy special tax concessions for both the company and their investors.

These tax benefits include capital gains tax exemption for gains made on PDFs, and concessional tax treatments on dividends. PDF Tax Concessions

However, capital losses on PDFs cannot be used to offset gains, and cost of gearing into a PDF, cannot be claimed as an investment expense for income tax purposes.

PDFs have a mandate to make certain types of investments. The criteria for these investments include:

  • Investments must be in Australian companies
  • The PDF must purchase at least 10% of a company's shares
  • PDFs cannot use more than 30% of its committed capital to an investee company
  • Investee companies must be smaller than $50 million in capitalisation 
  • PDFs can not invest in retail or real estate businesses 

A PDF can either focus on a specific industry such as wine, technology, mining, or medicine or spread its investments across a number of different industries

Pooled Development Funds may be appropriate for investors seeking:

  • Diversification into small Australian companies
  • A tax effective long term investment
  • Exposure to companies at a formative stage of development
  • Potential high returns with high volatility
  • Concentrated exposure to one industry