The corporate regulator will likely focus any changes to standards or guidance for the private credit asset class in relation to investments by retail investors directly, with institutional investors already able to access the necessary information for undertaking deep analysis on these investments, according to IFM Investors.
As part of its discussion paper on public and private markets earlier this year, ASIC said it was currently undertaking work to examine private credit across both wholesale and retail private markets.
In an update earlier this month, ASIC said it would work with the private credit industry to develop potential guidance and implement more consistent standards and practices across the industry.
Speaking to InvestorDaily, Hiran Wanigasekera, Australian co-head of diversified credit at IFM Investors, said ASIC’s concerns are likely to be focused on less-informed investors entering these asset classes as opposed to institutional investors.
Wanigasekera explained the institutional investors that IFM Investors generally caters to tend to have significant internal research capability and access to detailed information.
“If those [institutional] investors are making an allocation to an asset class or a manager and are going into private credit for example, they do a lot more research and have a lot more choice in front of them and they do a much deeper analysis,” said Wanigasekera.
“We think ASIC’s concern is really around the less-informed investors who are entering into an asset class like this. It’s really about protecting them.”
Wanigasekera said there are a few areas where ASIC and the industry could do more to address this.
Ensuring that retail investors have a deeper understanding about products and the risk profile of different products across all asset classes in general is vital, he said.
“Does the investor truly understand the potential downside risks of a certain type of investment? Whether that’s private credit or private equity, it doesn’t matter,” he said.
“There’s more to be done there in terms of trying to make sure that the choice they make is an informed choice.”
The quality of reporting and information that less-informed investors have access to is another area to be looked at, he explained.
“[For example], is it really liquid? Can you treat it like a bank account or a term deposit? That sort of information needs to be better understood and reported on so that those investors can make an informed choice,” he said.
“Then there’s the basics around ‘what have I actually invested in? If I’ve invested in someone’s private debt fund, what’s actually within that? How are those investments actually performing?’
“This information could be made more broadly available and in a way that’s easily understood by the man on the street.”
Wanigasekera said there is a need for greater transparency around products in terms of how they work, fee structures, and how the manager is being remunerated in relation to retail investors.
“[It should be] what the supermarket does in terms of making sure that everything is on an equal footing so that you can actually compare and understand what something costs and what value you are getting out of that,” he said.
Wanigasekera said these are all areas that could be improved at the retail investor level and is likely where ASIC will focus its attention in terms of improving guidance and standards in this area.
