In her speech at the Australasian Investor Relations Association (AIRA) Annual Conference, ASIC commissioner Simone Constant highlighted the substantial growth of private equity funds in Australia, with assets under management nearly tripling to $66 billion over the past 15 years.
This expansion comes amid a notable slowdown in initial public offerings (IPOs) and a trend of public companies transitioning to private ownership. Last year alone, the ASX market cap saw a reduction of $55 billion, highlighting the dynamic shifts within the market.
This shift towards private markets is a trend ASIC is keeping a “close eye on”, Constant said.
“Private markets and private capital are an important and growing part of the global economy. They’re also an important and growing part of the Australian economy – we’re no stranger to this trend. There are, though, some idiosyncratic factors at play in Australia,” the ASIC commissioner explained.
“I’m not here – and ASIC is not here – to advocate for one structure over the other – listed versus unlisted, public versus private. We are saying however that regulation must be targeted to the risks and issues of both.”
Constant highlighted that investing others’ money in private markets requires significant responsibility, but lacks the transparency and accountability found in public markets.
“There is a certain level of responsibility and expectation that goes with the privilege and opportunity of investing the money of other people. Now, in private markets and investments, agency for that is taken on by governance without some of the tools of transparency and accountability we see in listed and public markets,” she said.
“While public and private market investments are different – and we accept they are different – both must be fair to investors. Both must consistently meet the fair expectations of the investors who place their money with them.”
The regulatory body also cautioned regarding the potential for increased insider trading risks due to the growing interactions between listed entities, consultants, and experts.
“We know private markets provide fewer investment opportunities for retail investors. We know they have reduced financial reporting, disclosure, and corporate governance requirements and that this, in turn, can intersect with the transparency of important financial information, such as valuations. And we know that with the growing holdings and presence of these entities, there are increased contact points between listed entities, consultants and experts – which, of course, increases the risk of insider trading. This is why we are carefully watching these developments,” Constant said.
“So, I encourage everyone here today to think about your approach to stewardship with this context and in this time of change, and how you can embed accountability into your practices in pursuit of your stated purpose of confidence in your listed and unlisted entities.”
Last month, the Reserve Bank of Australia (RBA) highlighted the “significant growth” of Australia’s private equity market as a potential pitfall.
Namely, the central bank noted that while private equity investments can foster growth in new and underperforming companies, the private market’s less stringent governance and reporting requirements compared to public markets may hinder transparency and informed investment decisions.
Moreover, the RBA argued that the increase in private equity buyouts has reduced public market diversification and removed equity capital from the public market, contributing to a greater concentration of large companies despite a decline in new listings and IPOs.
