Source: Investor Daily
Author: Maja Garaca Djurdjevic
Date: 26 February 2025
ASIC has warned private market operators as it moves to expose the opaque market to greater transparency.
Speaking to media on Tuesday, ahead of the publication of its paper, Australia’s Evolving Capital Markets: A Discussion Paper on the Dynamics Between Public and Private Markets, chair Joe Longo said feedback from the private markets sector is key to ensuring a suitable regulatory response.
The paper is ASIC’s latest effort to shed light on a market segment it increasingly associates with opacity, following the regulator’s announcement last year of a new division focused on assessing governance, reporting, and conflicts of interest in private market firms.
Speaking on Tuesday about ASIC’s previous engagement with the private markets sector, particularly in seeking feedback, Longo described it as “inconsistent”, noting that “some participants in the market simply don’t like being transparent”.
“They don’t like being questioned about what they’re doing, about the standards they’re adopting, about the quality of their disclosures,” Longo said.
The chair continued that greater transparency should never be viewed as a disruptive.
“I don’t see greater transparency coming at an undue cost,” he said.
“Companies should be on notice that when the regulator seeks information, my expectation, ASIC’s expectation is that you provide it.”
ASIC commissioner Simone Constant clarified that the regulator’s latest paper is not a judgment on private markets or their role in the economy.
“We are not at ASIC saying that private v public markets, one is better than the other, we are certainly not saying that private credit is exactly the same as public markets, and that that is the direction of law reform or regulatory change,” Constant elaborated.
“What we are doing is asking questions about whether current settings and approach, in terms of disclosure, conduct and understanding, is appropriate for the size and significance of this market.”
ASIC is seeking feedback on the discussion paper questions by 5pm on 28 April. This feedback, it said, will help it build its understanding of evolving market dynamics and to gather actionable ideas on regulation that will enhance the operation of capital markets.
“This will assist us in fulfilling our objectives of maintaining, facilitating and improving the performance of the financial system and the entities within it, and promoting confident and informed investor and consumer participation in the financial system,” the regulator said.
Zagga ready to engage
Alan Greenstein, co-founder of Zagga, told InvestorDaily this week that the alternative real estate investment manager is open to providing feedback to ASIC and participating in the process.
"We have an exceptionally benign relationship with ASIC. We are a conservative, fully regulated entity ... We meet all of our reporting obligations so we've never really had the regulator pick up the phone and say 'hey, I need to ask you something'," Greenstein said. "If we were approached, I think we would like to have our say in the conversation." He described the regulation of private credit as a "natural" outcome of the global surge in the asset class, adding that what ASIC is concerned about is the lack of insight it has into the area.
"I don't think that is necessarily a bad thing. If the world of private credit is going to grow and more people are going to get involved, I would like to believe that the investors themselves would like to have more transparency," Greenstein said.
From Zagga’s perspective, he admitted he would prefer to address transparency, valuation, pricing, and liquidity issues through a code of conduct.
“I think the industry needs to organise itself before the regulator imposes upon you,” he said, reiterating, however, that he does understands the regulator’s concerns, especially as they pertain to the bigger end of the market.
Greenstein emphasised that the market is highly varied, and any steps to regulate it must be tailored accordingly.
“You can’t use the same measures to maybe regulate the large, large players, as you would for the small, small players,” he said.
He added that Zagga, like many of its peers, adheres to the highest standards of oversight and transparency, and has done so since its founding.
“We feel that is the minimum standard for this market. I would say to you, honestly, that all of the successful players who are taking these big money mandates probably meet similar standards, because I don’t think that any of the large instos that are investing in them are going to sacrifice their DD [due diligence] to go into a murkier field,” Greenstein concluded.
Concerns and support for increased oversight
Last year, after Longo’s speech at the ASIC Annual Forum, where he again highlighted the lack of transparency in private markets, including private credit, concerns emerged about the potential introduction of public market-level oversight to address these risks. Market pundits warned at the time that such a move could have significant implications for private market participants.
PrimaryMarkets’ executive chairman, Jamie Green, said in November that private markets “by their very nature thrive on confidentiality and strategic control over transactions”, and an increased scrutiny of the sector may lead to “more conservative investment behaviour and a change in investor sentiment”.
“When ASIC steps in to review private market transactions, it can disrupt the trust and discretion that usually characterises these markets,” Green said.
“Investors may become more cautious about engaging in private market deals, particularly in sectors or industries where regulatory intervention is more likely.”
Such changes in investor sentiment could translate into a slowdown in deal-making activity, impacting market liquidity and valuation, he added.
However, others have been much more welcoming of increased oversight, with Andrew McVeigh, managing partner at Remara, endorsing increased transparency and standardised reporting on a webcast hosted by InvestorDaily last year. He said additional oversight would be “fantastic” for the industry, noting it would help differentiate between effective and ineffective managers.
“I think the ability to be able to weed out good managers versus bad managers, a level of transparency and standardised reporting, would be fantastic for the industry and probably be very beneficial for most investors. So, our house view is we’re well supportive of ASIC and their endeavour to show some transparency in the industry,” McVeigh said at the time.
Also speaking on the webcast, Nick Raphaely, co-founder and co-CEO of AltX, said he would support sensible regulation as a means to elevate industry standards and differentiate businesses.
“We encourage regulation, obviously, to a sensible, not extreme level, because I think the smaller players are not resourced to handle it. So, I think it becomes a point of differentiation. And I also think that kind of sensibly applied and interpreted, it forces you to raise the standard of your business,” Raphaely said.
“Like we report to APRA every month, similar to the guys, we do an AUSTRAC report every year … obviously ASIC’s there too … And so like, it forces us to operate a certain level, but also becomes a point of differentiation.”
Raphaely added that regulation can help validate the efforts of established, compliant businesses.
To read more about what ASIC said in its report, click here.
