Earlier this year, the corporate regulator announced it would pay increased attention to changes in the structure of capital markets, including examining “other products and markets” such as debt markets, as well as a increased oversight of private markets as part of its broader strategic priorities.
The move follows a recent decline in listed companies and the significant growth of private equity funds in Australia, which have almost tripled in size since 2010 to around $66 billion in assets under management at the end of June. last year.
Speaking at ASIC’s annual forum on Thursday, the regulator’s chairman Joe Longo said the lack of transparency in private markets, including private credit, was concerning.
“Regulators like us and prudential regulators are concerned that if something goes wrong in the private credit sector, we won’t see it coming and it will have a contagion effect,” Longo said.
“We need to know what’s happening from a capital raising and efficiency perspective and I’m certainly interested in any regulatory hurdles that fall within ASIC’s power to change the levers to encourage capital raising. capital more efficient.”
However, according to one platform provider, applying public oversight to private markets to manage risk could have significant implications for private market participants.
PrimaryMarkets executive chairman Jamie Green noted that private markets “inherently thrive on privacy and strategic control of transactions,” and that increased oversight of the sector could lead to “more conservative investment behavior and a change in investor sentiment.”
“When ASIC steps in to review private market transactions, it can disrupt the trust and discretion that usually characterizes these markets,” Green said.
“Investors may become more cautious when engaging in private market transactions, particularly in sectors or industries where regulatory intervention is more likely.”
Such changes in investor sentiment could result in a slowdown in trading activities, which would impact market liquidity and valuation, it added.
“For example, if an organization comes under investigation for its handling of a particular transaction, investors in publicly traded companies in which that organization has a stake or that operate in similar industries could reassess their exposure , which would lead to volatility in the stock prices of these stocks. ” Green said.
Although the intention of increased oversight is to protect investors and promote transparency, Green warned that the short-term impact of ASIC’s review, which is expected to take at least two years, could result in “increased uncertainty, loss of market confidence and potential disruption to transactions.” do some activity.”
“In the long term, this review could lead to structural changes in private market operations, with increased costs and regulatory burdens affecting both investors and businesses,” he said.
When ASIC announced its increased focus on the private markets sector, one of its main concerns was the lack of oversight in financial reporting, disclosure and corporate governance, as well as the limited transparency of the sector.
This, it warns, could reduce “fair participation” and increase the risk of insider trading, given the many points of contact between listed entities, consultants and experts.
Green felt, however, that given that private market players are institutions, private equity firms, large super funds and wholesale investors, he is not convinced that current private market players need to ‘reinforced surveillance or protection.
“It depends on whether the study concludes that there is a desire to expand private market participants to include retail investors. If the review recommends doing this, then significant structural changes would be necessary.
“However, if this is not the case, the need for fundamental structural change is not immediately apparent. »
ASIC Chairman Joe Longo has previously argued that the move towards private markets has reduced a number of “large, high-performing listed entities”, significantly limiting opportunities for many Australians and smaller investors to participate directly to their future success.
With around $55 billion wiped from Australian listed markets last year, the president expressed concerns about diminishing diversification opportunities in public markets and the growing concentration of large institutional investors.
