ASIC intervention in private markets, private credit earns mixed reception from investors and asset managers

ASIC’s public intervention in the growing world of private markets has been met with concerns about a growing regulatory burden.

(L-R) ASIC commissioner Simone Constant, ED of markets Calissa Aldridge and chair Joe Longo with the ASIC report into Australia's Evolving Capital markets. Picture: John Appleyard

The financial regulator’s interest into burgeoning private markets has drawn a mixed response from industry, as it pushes towards new rules for the opaque sector.

On Wednesday, the Australian Securities & Investments Commission revealed the findings of its first major review of the growing world of private markets and private credit, detailing its concerns over the treatment of investors and assets.

Opaque investment structures and inadeuate disclosure, conflicts of interest, valuation uncertainties, illiquidity, leverage and the growing interest from retail investors are all central concerns for ASIC, which sees a need for new laws to tackle the issues.

ASIC is also worried about the growing holdings in private and unlisted assets by superannuation funds. The Association of Superannuation Funds said ASIC’s interest was unwelcome, and pointed to similar work in the area by the Australian Prudential Regulation Authority.

ASFA boss Mary Delahunty said strengthening practices and governance was important, but said: “Every minute the super funds spend responding to duplicative regulatory requests is a minute they cannot spend servicing members and building members’ retirement funds.”

“Every single Australian with a superannuation account has benefited from the sophisticated approach that super has taken to exposure in private markets,” she said.

“Any increase in regulatory burden by ASIC – or more broadly – could disincentivise superannuation funds from diversifying out of listed markets, which has the potential to impact members’ retirement funds.”

CEO of the Association of Superannuation Funds of Australia Mary Delahunty. Picture: Ian Currie

ASIC’s review also noted the retreat of publicly traded markets, with more companies choosing to remain private.

Mr Longo this suggest a need to change the rules for publicly listed companies.

ASX Listings general manager James Posnett said the market operator was open to “making it simpler” for listed companies.

“We will continue to listen and engage with our customers, ASIC and the industry so we can improve the experience for new and existing listed entities and drive a dynamic and globally competitive listed market,” he said.

Corrs Chambers Westgarth head of corporate Sandy Mak said ASIC should strengthen public markets through further oversight of private market operators.

“The decline in ASX listings reflects a global trend driven by the rise of private capital, offshore listings, and the appeal of less ­burdensome regulatory environments,” she said.

“To maintain a healthy balance between public and private capital markets, Australia must refine its regulatory framework to ensure public markets remain attractive without compromising investor protections.”

The Financial Services Counsel, representing private sector operators, said regulators should be wary of imposing greater burdens on private markets, saying their success didn’t justify intervention.

FSC chief executive Blake Briggs said mature market operators should not be hampered by “an overly zealous regulatory crackdown”, and ASIC should instead focus on optimising regulatory settings in both public and private markets.

ASIC chair Longo said the regulator had struggled to get access to information from private market operators, and the commission may need stronger powers, similar to the Securities and Exchange Commission in the US and the Monetary Authority of Singapore.

The regulator is also concerned about the possibilities of failures in private credit, a growing category of non-bank lending.

Private credit and alternative investment house iPartners welcomed ASIC’s intervention, saying regulation would help put guardrails around the sector.

The CEO of iPartners, Travis Miller, said closer scrutiny of the sector made sense.

“There’s been a lot of new entrants in the market in the past few years. Often they’re too small to have the relevant governance in place, independent directors and the like,” he said. “(Added scrutiny) is great, it’s a positive.”

ASIC is still working on its proposals for private credit, with plans for a more detailed update later in the year.

Pengana Credit boss Nehemiah Richardson said anything ASIC did make private credit “fairer and more transparent” was welcome.

He said it was critical private lenders were clear on their governance and asset valuation unit pricing, as well as when money went in and out of funds.

Mr Richardson said private credit investors should understand what they had invested in.

“This is about understanding and ensuring that investors understand what they’re looking at and creating a level playing field for people to follow,” he said.

Mr Richardson said it was important to look at not only fund managers, but the distribution of investments in private credit.

Challenger Investment Management fixed income investment strategy head Peter Robinson said valuations in unlisted and private credit assets were key. “If public market valuations are declining then this should be reflected in some way in private market valuations – a view we share but many domestic managers do not,” he said.

But Mr Robinson warned ASIC’s report “won’t close the book on the governance questions surrounding private credit”.

“The approaches taken by firms around treatment of upfront fees, management of conflicts of interest and valuation practices will continue to come under scrutiny both by regulators, media and other investors in the fund,” he said.

Financial Services Council CEO Blake Briggs.

ASIC’s review also noted the retreat of publicly traded markets, with more companies choosing to remain private.

Mr Longo said this suggested a need to change the rules for publicly listed companies.

ASX Listings general manager James Posnett said the market operator was open to “making it simpler” for listed companies.

“We will continue to listen and engage with our customers, ASIC and the industry so we can improve the experience for new and existing listed entities and drive a dynamic and globally competitive listed market,” he said.

Corrs Chambers Westgarth head of corporate Sandy Mak said ASIC should strengthen public markets through further oversight of private market operators.

“The decline in ASX listings reflects a global trend driven by the rise of private capital, offshore listings, and the appeal of less ­burdensome regulatory environments,” she said.

“To maintain a healthy balance between public and private capital markets, Australia must refine its regulatory framework to ensure public markets remain attractive without compromising investor protections.”

The Financial Services Counsel, representing private sector operators, said regulators should be wary of imposing greater burdens on private markets, saying their success didn’t justify intervention.

FSC chief executive Blake Briggs said mature market operators should not be hampered by “an overly zealous regulatory crackdown”, and ASIC should instead focus on optimising regulatory settings in both public and private markets.

ASIC chair Longo said the regulator had struggled to get access to information from private market operators, and the commission may need stronger powers, similar to the Securities and Exchange Commission in the US and the Monetary Authority of Singapore.

The regulator is also concerned about the possibilities of failures in private credit, a growing category of non-bank lending.

Private credit and alternative investment house iPartners welcomed ASIC’s intervention, saying regulation would help put guardrails around the sector.

The CEO of iPartners, Travis Miller, said closer scrutiny of the sector made sense.

“There’s been a lot of new entrants in the market in the past few years. Often they’re too small to have the relevant governance in place, independent directors and the like,” he said. “(Added scrutiny) is great, it’s a positive.”

ASIC is still working on its proposals for private credit, with plans for a more detailed update later in the year.

Pengana Credit boss Nehemiah Richardson said anything ASIC did make private credit “fairer and more transparent” was welcome.

He said it was critical private lenders were clear on their governance and asset valuation unit pricing, as well as when money went in and out of funds.

Mr Richardson said private credit investors should understand what they had invested in.

“This is about understanding and ensuring that investors understand what they’re looking at and creating a level playing field for people to follow,” he said.

Pengana CEO Nehemiah Richardson.

Mr Richardson said it was important to look at not only fund managers, but the distribution of investments in private credit.

Challenger Investment Management fixed income investment strategy head Peter Robinson said valuations in unlisted and private credit assets were key. “If public market valuations are declining then this should be reflected in some way in private market valuations – a view we share but many domestic managers do not,” he said.

But Mr Robinson warned ASIC’s report “won’t close the book on the governance questions surrounding private credit”.

“The approaches taken by firms around treatment of upfront fees, management of conflicts of interest and valuation practices will continue to come under scrutiny both by regulators, media and other investors in the fund,” he said.

Originally published as ASIC intervention in private markets, private credit earns mixed reception from investors and asset managers