But exactly how much information it needs and whether it is looking for more powers of supervision over the sector, which is already regulated by the Australian Prudential Regulation Authority, is not yet clear.
In comments on Tuesday, ASIC chair Joe Longo summarised his concerns about the regulator’s lack of real knowledge about the size and risks of the emergence of private markets in Australia, particularly private credit.
“There is a lot happening in private capital markets,” he said, launching a discussion paper on the implications of the rise of private market investing. “The starting point is that I can’t do my job in the dark. We can’t have an intelligent discussion as an economy and as a regulator without having more transparency.
“It’s in everyone’s interests for us to know more about what’s going on in private markets.”
With super funds also becoming increasing investors in private markets, Longo also indicated that more attention may need to be given to areas such as how accurately their assets are valued.
In the discussion paper, the corporate regulator declared its concern about the decline of public equity markets in Australia and its desire to understand the risks of private investments.
It notes predictions in some sectors that the next crisis in global financial markets could come from problems in private markets rather than public markets.
Comments by ASIC officials show the regulator sees the decline in the role of public markets and the increased investment in private markets as having developed in parallel with the dramatic rise in the role of the super fund sector in the financial system over the past decade.
“The size of Australian super funds’ influence (on) our capital markets ... will likely drive the further growth of private markets, embedding them into the structure of our economy,” the report notes.
Problems with the decline in the relative role of capital in listed markets are not confined to Australia. Concern is also being raised in the UK about the decline in the role of the London Stock Exchange.
But as ASIC notes, the increasing role of super funds is a specific characteristic of the system.
The value of the super fund sector in Australia has more than doubled over the 10 years to more than $4 trillion, with the value of APRA regulated funds growing by 148 per cent to $2.8 trillion. The self-managed super sector, which is regulated by the Australian Taxation Office, has grown by 85 per cent over the same period to more than $1 trillion.
APRA-regulated funds have investments worth 23 per cent of the ASX by market capitalisation, with SMSFs having another 12 per cent.
The report also notes the growing consolidation of the super fund sector, with the number of APRA-regulated funds more than halving from 249 to 95 over the period and the number of super fund trustees plunging from 165 to 64.
It notes that super funds are playing a bigger role in decision making by listed companies, citing the on-market battle for Origin Energy which was effectively blocked by AustralianSuper.
It also notes super funds have become significant investors in private assets including infrastructure, private equity and credit and other alternative assets.
The country’s two biggest funds, AustralianSuper and Australian Retirement Trust, have 22 per cent of their funds under management in private assets with many big funds indicating their plans to increasingly invest in private market assets. Hostplus is reported to have a much bigger exposure to unlisted assets.
Longo said ASIC was “concerned” about private credit.
“While it does not appear to be systemically important in Australia, failures are on the horizon, and at current volumes it is untested by prior crises,” he said.
The desire to know more about what is going on in private markets is tracked, in ASIC’s thinking in the report, with a desire to take a deeper look at the implications of the rise of the super sector.
“We are keen to understand how the growing dominance of superannuation in Australia’s economy is influencing our markets, given its crucial role in securing our financial wellbeing on retirement.”
A delegation of some of the largest industry super funds is in the US this week spruiking their potential and interest to invest more of their billions into unlisted assets in the US.
“Opacity, conflicts, valuation uncertainty, illiquidity and leverage in the private markets are the key risks I am concerned for ASIC to focus on,” Longo said in an introduction to the report. “The critical point is understanding whether there is a need for intervention, whether it is a focus for ASIC or another regulator to consider, or whether we leave the market and wholesale investors to their own devices.
“Superannuation is critically important to this story here and, as a driving force in markets, it is structural and here to stay.”
Longo did not spell out what he thinks the next steps might be – whether there needs to be more consultation between ASIC and super funds on their private investments or whether there might be grounds, for example, for insisting on more detailed financial reporting by super funds.
Is the fact that Australian super funds, for example, own airports, ports and electricity companies in Australia or toll roads, ports and data centres and renewable energy companies offshore something for ASIC to worry about or at least monitor?
Is the fact that the big super funds are getting more exposure to private credit, both in Australia and significantly more offshore, a worry?
If so, what is the role of APRA, a regulator which already has significant powers and has daily interactions with super funds, and what is the role of ASIC?
ASIC is calling for responses to its discussion paper by April 28 as it considers “advancing Australia’s regulatory road map for public and private capital markets”.
It will be interesting to see what the super funds say.
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