ASIC – evolving private capital markets

Last week, the Australian regulator, ASIC released a discussion paper about Australia’s evolving [private] capital markets.  The ASIC discussion paper follows the establishment of a taskforce in 2024 to explore the need for additional regulation in private markets.

Key themes

Reporting by a number of commentators draws the key themes from the discussion paper including:

• Shift in public markets:  The manner in which Australia has followed global trends for the shift away from public to private markets.  This shift has been described as being driven by a number of factors (both macro and micro), including a decline in the number of public companies attributed to:

• concerns about increased regulatory burdens and compliance costs associated with being listed
  • changes to the nature of companies – impacting the benefits of being listed; and
  • the growth of private markets – making it easier to access capital privately.

Some of these factors were also considered, in a New Zealand context, by the Capital Markets 2029 report from a steering committee headed by Martin Stearne.

• Growth in private equity:  Again, in keeping with global trends, there has been an increase in the number of Australia p.e. funds and the value of assets under management.  This has been coupled with ere has also been an increase in investment by foreign private equity funds in Australian assets.  This trend can also be seen to have driven the recent move by MBIE to seek public feedback on possible regulatory changes to enable KiwiSaver providers to increase investment in private assets. 

• Growth in private credit:  One trend that is not so evident in New Zealand (yet) is a growth in private credit.  ASIC does not wish to slow that growth, because greater flexibility in accessing capital for growth is seen as necessary – but seems focused on ensuring that there are adequate levels of oversight – for example where retail investors have some exposure via their superannuation funds.

Private market risks

The ASIC discussion paper also identifies the risks associated with the rise of private capital markets, including:

• misclassification of retail investors – as wholesale investors
• management of conflicts of interest
• valuation of illiquid assets
• unequal treatment of investors (e.g. preferential rights for some investors and not others)
• leverage in the sector
• illiquidity risk.

ASIC is also concerned about the knock-on impacts for the broader financial system, such as market integrity and financial stability.

Relevance in New Zealand

Despite the smaller size of our economy and much smaller pool of savings (and correspondingly smaller scale of capital markets and activity), we see some of the same trends that are noted by the ASIC discussion paper.  Consequently, any regulatory response across the Tasman is likely to be relevant (to the FMA) here.  Possibly, this may be coupled with any findings from such worrying developments as the underlying factors that drove the decision to appoint statutory manager to the Du Val group.

In terms of timing, it seems that any regulatory response from ASIC is likely to be at least a year away – after it has received feedback from the ASIC discussion paper.  Consequently, it seems likely that any knock-on implications for New Zealand are still some distance away.

For more information, please do not hesitate to contact me.