The Australian Securities & Investments Commission (ASIC) has raised concerns over the escalating trend of superannuation funds and private equity firms executing take-private transactions, which are contributing to a contraction of the Australian Securities Exchange (ASX). This heightened vigilance comes amidst global apprehension that the next financial instability could originate from the burgeoning private markets.
Recognizing the rapid expansion of private markets and the increasing involvement of superannuation funds in this “opaque” sector, ASIC has amplified its regulatory focus.
On Wednesday, the corporate watchdog unveiled a pivotal document, “Australia’s Evolving Capital Markets: A Discussion Paper on the Dynamics Between Public and Private Markets,” designed to stimulate discourse on its regulatory strategy and solicit practical solutions for enhancing Australia’s capital markets.
The paper elucidates a direct correlation between the growing influence of superannuation funds and the proliferation of private markets, an area where ASIC currently faces challenges regarding visibility. ASIC’s objective is to explore avenues for bolstering the attractiveness of public markets and augmenting transparency within private markets, without impeding their natural progression.
ASIC Chair Joe Longo articulated the limitations imposed by current data and information-gathering capabilities, stating, “At present, ASIC’s data and information-gathering powers are inefficient and incomplete. We simply can’t do our job properly if we are in the dark.” He emphasized the deficiency in robust, recurring data on private markets, a contrast to the data collection practices of international regulators.
Longo highlighted that regulators like the U.S. Securities and Exchange Commission (SEC) and the European Securities and Markets Authority (ESMA) routinely receive reports on fund liquidity, risk metrics, management, and portfolio holdings. He underscored the importance of establishing appropriate regulatory frameworks for the future of the Australian economy, noting the symbiotic relationship between public and private markets.
A central inquiry in ASIC’s discussion paper revolves around the impact of the continued growth of superannuation funds on Australia’s capital markets. Commissioner Simone Constant emphasized that while the shift in dynamics between public and private markets is a global phenomenon, Australia’s superannuation sector presents unique local implications.
The rapid growth of the superannuation sector and its consequential influence on capital markets are pivotal factors. Constant highlighted that the sector’s expansion will inevitably solidify private markets within the Australian economic structure. ASIC’s paper reveals that Australia’s superannuation sector, now exceeding $4 trillion, has surpassed the ASX, valued at $3 trillion. TThe sector has experienced 118 percent growth over the past decade, with significant consolidation among funds.
This concentration has led to larger funds seeking substantial investment deals, often in alternative investments, including international public markets and domestic and international private markets. While domestic public equities allocations have remained stable, international public equities investments have increased. ThThe paper also highlighted the increasing allocation of super funds to private markets, ranging from 0% to 38% of total portfolios. The diminishing share of Australia’s public equity markets in the global landscape is another key concern. ASIC’s paper indicates a decline in the ASX’s share of global market capitalization, despite reaching record valuations. Major private equity transactions, such as Blackstone’s acquisition of AirTrunk and the IFM-led buyout of Sydney Airport, have accelerated the shift away from public markets.
Furthermore, Australia has witnessed a significant reduction in initial public offering (IPO) activity, reaching its lowest level in over a decade. In contrast, a substantial number of delistings have occurred, often due to acquisitions or private takeovers.
As companies increasingly opt for private markets, the value of Australia’s private capital assets under management has surged. ASIC is particularly monitoring private credit, anticipating potential failures and investor losses. The regulator is focusing on fund governance, valuation practices, and conflict of interest management. ASIC’s discussion paper is intended to initiate a broader debate, with a follow-up report scheduled for 2025. The regulator seeks actionable ideas to address the issues raised, emphasizing the need for enhanced data collection to manage risks effectively. The feedback will help determine whether the decline in public markets is structural or cyclical and whether the growth of private markets is sustainable. Submissions on the paper are open until April 28.
