Keystone lent money to director’s $300m Port Douglas resort dream

Keystone Asset Management, a financial services company currently under investigation by the Australian Securities and Investments Commission (ASIC), lent money to companies involved in a $300 million luxury resort project in Port Douglas, Queensland. The project, known as the Fairmont Resort, was developed by Melbourne property developer Paul Chiodo. “We are talking about absolute uber five-star luxury here, the very high end,” Chiodo told The Cairns Post when hotel agreements were signed in 2020.

Recently, Chiodo was ordered by the Federal Court to surrender his passport amid ASIC's investigation into Keystone, where he served as a director until May 27. The investigation focuses on the use of investor money in the Shield Master Fund, a managed fund promoted by Keystone, leading to freezing orders over its assets. ASIC has raised concerns about potential conflicts of interest that may not have been adequately disclosed in product statements.

Documents obtained by The Australian Financial Review reveal that Keystone, both independently and as trustee for the Advantage Diversified Property Fund (ADPF), holds two mortgages over 75 Port Douglas Road Pty Ltd, the company owning the former Havana resort site. These mortgages were registered on February 6, one day before ASIC announced interim stop orders over the Shield fund, and again on May 15. The exact amount invested by Keystone and its related entities remains undisclosed.

Further revelations indicated that Macquarie superannuation and other customers using its Wrap investment platform were among those invested in Shield. Under recent court orders, Keystone is prohibited from moving any assets from Australia or dealing with three specific funds, including the Shield Master Fund and ADPF.

The Shield Master Fund includes a class called the Advantage Diversified Property Class (ADPC), which invests in property financing through the ADPF, a pooled property and mortgage scheme. Despite Shield controlling ADPF, they are not consolidated entities. ASIC’s interim stop orders apply to four Shield fund classes—balanced, growth, high-growth, and conservative—with combined net assets of $36.7 million. Shield’s investment in the unlisted ADPF is valued at $24.5 million.

The product disclosure statements for these funds, dated July 2023, do not mention ADPF or Chiodo Corporation. Chiodo is identified only as the investment director of CF Capital, the investment manager for Shield, and as the executive director of Keystone, which acts as the fund trustee. Chiodo owns 60 percent of CF Capital but is no longer listed on CF Capital’s team online.

Despite multiple requests for comment, Chiodo and Keystone did not respond last week. However, the ADPC product disclosure statement indicates a closer relationship. It asserts that Keystone does not lend to related parties but invests in ADPF, which provides loans on commercial terms. Chiodo Corporation, owned by an entity controlled by Chiodo, is identified as the property developer receiving these funds.

Chiodo Corporation, which developed the Port Douglas site, faced significant setbacks when the Port Douglas Shire Councillors rejected its plans in 2021, and Brisbane’s Planning and Environment Court upheld the rejection in November last year, citing the design as "wildly discordant with the character of Port Douglas."

ASIC's concerns also included potentially misleading statements about diversification levels and inappropriate asset classifications. In early April, Keystone informed investors that it had engaged legal, accounting, and corporate advisers to review the Shield Master Fund's governance and investments, particularly regarding conflict management and related party arrangements with Chiodo Corporation and other entities associated with Paul Chiodo.