The Australian Securities and Investments Commission (ASIC) has said it is keeping a close eye on Australia’s private markets that lack transparency and data and has questioned if regulatory settings could be playing a role in determining flows to the sector.
Speaking at an event in Sydney on Wednesday, ASIC chair Joe Longo confirmed the regulator has ramped up scrutiny of the sector and has set up a dedicated task force towards this.
“As we see more and more activity in the private market, the question I have for myself and for ASIC is: what is happening here?” Longo said.
“It’s less transparent – should we be worried about conflicts of interest and valuations?”
Recent figures suggest Australia’s listed markets exchange saw $55 billion wiped from its market capitalisation in the last year.
Separately, in a recent report, RBA analysts suggested assets under management in Australian-focused private equity funds have nearly tripled in size since 2010 and stand at around $66 billion.
“We need to understand better what’s going on there because the very nature of private markets is a lack of transparency and data,” Longo said while reiterating that the regulator does not hold a preference between public or private markets.
Rather, with regard to opaque private markets, he said ASIC’s priority remains the protection of investors and the integrity of the market.
“And so, the issue we’ve got is questions of conflicts of interest, valuation of assets, and most of all, are we part of the problem?
“Are the regulatory settings part of the problem? It’s not in the public interest, it’s certainly not good regulation, if there are things we can change or adjust that can enable more confident investment, whether that’s private markets or public markets,” Longo said.
There have been calls in recent months for increased oversight of private markets, including from international bodies like the International Monetary Fund, Bank of England, and the US Federal Reserve.
The IMF cautioned in its April 2024 Global Financial Stability Report of potential vulnerabilities that could stem from limited oversight of this “opaque and highly interconnected” segment of the financial system, although it did not see the rapid growth of private credit as an immediate threat.
Creating a ‘level playing field’
For ASIC’s Longo, part of the debate could lie in the compliance obligations of listed entities, and whether that is “having a chilling effect” on access to public markets.
Reflecting on discussions with numerous market participants on the time and cost of compliance, the ASIC chair noted this helps ensure high standards of confidence in Australian markets.
But, he said, “if those requirements are having a chilling effect, such a chilling effect on access to public markets that people are driven into private markets and we create new problems there, then that’s not in the public interest either”.
“I think that’s a discussion we need to have as a community of investors and market participants,” he said.
Also speaking at the event, Barrenjoey Capital Partners’ co-executive chairman, Guy Fowler, echoed the sentiment of levelling the playing field between public and private markets.
“If you talk to management teams and directors who’ve gone from the public markets to a private setting or vice versa, one consistent comment is that in a private setting, all they need to do is focus on the business. In a public setting, understandably, there’s a whole lot more you need to worry about [like] proxy advisers, remuneration reports, and it takes a lot of time,” he said.
Fowler observed that, while public markets were once the go-to destination for companies seeking to access capital, “that world is changing”.
“There are deep pools of capital available in private markets, and we need to make sure [companies] are not overly hamstrung or at a disadvantage in wanting to be in the public domain.”
