Just over a month since ASIC commissioner Simone Constant emphasised the need for heightened accountability within private markets, chair Joe Longo has announced that the regulator is expanding its focus to respond to an uptick in privatisations.
Longo said in an article penned for the ASX that the corporate regulator has been examining “other products and markets”, including debt markets, as part of its latest project to test market cleanliness.
The project, which is set to ensure that Australia has “one of the cleanest equity markets in the world”, is nearing completion with an announcement expected in a matter of weeks, Longo said.
“As part of our efforts to keep Australia’s markets clean, ASIC has been actively targeting insider trading through our new award-winning system which automatically hunts for and detects suspected market misconduct,” Longo said.
Acknowledging a recent drop in listed companies and fewer entities “lining up to come to market”, Longo said private markets pose certain risks, including an increased chance of insider training.
“A reduction in the number of large, strong-performing listed entities limits opportunities for Australians to participate directly in the potential future success of Australian companies. There is also likely more concentration in large institutional investors in these companies. This dynamic may pose risk to the equitable participation in listed entities by smaller investors,” the chair said.
“Private markets do not only provide fewer investment opportunities for retail investors, they also have reduced financial reporting, disclosure, and corporate governance requirements. There is an associated risk of insider trading because there can be many contact points between listed entities, consultants and experts.”
In response, Longo said, the Australian Securities and Investments Commission (ASIC) is expanding its focus to respond to changes in the structure of capital markets.
“This includes examining other products and markets, including debt markets, when we conduct our market cleanliness work and further consider how firms are managing inside information,” the chair said.
In a speech at the Australasian Investor Relations Association (AIRA) Annual Conference in May, 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, she said, 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 at the time.
“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.”
She added that while public and private market investments are different, “both must be fair to investors”.
Also this year, 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.
