In August, it was reported that Australia’s largest super fund had canceled a $1.1 billion investment in Pluralsight, after the latter undertook a restructuring following a sharp decline amid rising rates interest and growing competition in the market.
“If revenues of the underlying business fall and borrowing costs rise, as was the case here, that will naturally cause stress in the business, as appears to have been the case here,” he said. he declared.
Raphaely emphasized that private equity remains a well-established asset class, typically requiring large ticket sizes to participate in transactions. As a result, investors typically access it through private equity funds or super funds, which are diversified across a number of deals.
“Therefore, the likelihood of retail investors directly losing a lot of money because a single trade goes bad, I think, is quite low,” he said.
“Where there are returns, there are risks, and this is probably proof of that. »
He also added that AustralianSuper appears “well diversified” and as such should have no difficulty absorbing this loss.
Hargraves also reiterated that “the higher risk/return profile of private equity is a characteristic of the asset class”, adding that “we will continue to invest in private equity, venture capital and also in the sector technology in general.
Similarly, Alan Greenstein, CEO of Zagga, pointed out that private equity, by its nature, is a risky asset class.
“I don’t think it’s necessarily fair to judge AustralianSuper for agreeing to this delisting. I mean, obviously, no one likes to lose money on a trade, but they certainly weren’t the only players in the trade. It was a very well-supported deal when it happened,” he said.
Addressing concerns about this asset class, Greenstein argued that private equity players understand that the risk is high, noting that “when you get there, it’s spectacular.”
“So when you get it wrong, you tend to get it wrong spectacularly.”
Greenstein also explained why AustralianSuper’s situation is under scrutiny, noting that this is due to the presence of “family and family money”.
“Whether these mums and dads are actually invested in this specific fund, which has suffered delisting, or if they are simply investors in one of the other Australian super funds, it raises the question of whether a manager who plays with mom-and-pop should invest in these kinds of deals and what the downsides are I think it’s a valid question,” he said.
For Pete Robinson, head of investment strategy, fixed income, at Challenger Investment Management, all funds are about taking risk, and when you take risk, some losses are inevitable.
He stressed that “we cannot say that private assets are inherently risky” based on a single transaction. For him, the key point to remember is the importance of governance and transparency.
“Investors confuse losing money with an inherent defect in the product. However, we must examine each agreement on its own merits. In the case of the Pluralsight/AustralianSuper deal, nothing has been publicly stated that should impact confidence in private markets,” Robinson said.
Fight against opacity
In its latest business plan for 2024-2028, the Australian Securities and Investments Commission (ASIC) recently announced that examining the growth of private markets would be a key part of its future activities.
Describing private markets as opaque, ASIC Chairman Joe Longo said: “Even though Australia’s private markets are dwarfed by the size of our listed securities markets, their opacity presents an outsized risk to the integrity of the market, particularly as more investors become exposed. »
Commenting on the corporate regulator’s announcement, Robinson praised ASIC’s “commendable efforts” to do more around assessments, processing and disclosure of upfront fees, as well as managing conflicts of interest.
“I think the ability to weed out good managers from bad managers, a level of transparency and standardized reporting, would be fantastic for the industry and would probably be very beneficial for most investors. So our view is that we fully support ASIC and their efforts to bring some transparency to the industry,” he said at the time.
Joining him on the webcast, Raphaely said he supported sensible regulation as a way to raise industry standards and differentiate businesses, but noted that excessive regulation, prevalent in Australia, can be burdensome .
To learn more about our webcast, click here.
