Australian Retirement Trust (ART) has told the corporate regulator that existing private markets regulation is largely fit for purpose for large, sophisticated investors like itself and that regulators must avoid lumping super funds with more obligations that could impact funds and their members.
“While we acknowledge the importance of regulatory oversight across all parts of the financial system, we note that APRA-regulated funds are already subject to comprehensive regulation,” ART chief investment officer Ian Patrick wrote in the introduction to ART’s previously confidential submission to ASIC’s consultation on the dynamics between public and private markets.
“As such, any additional oversight should be carefully targeted to address potential gaps in other parts of the market, rather than duplicating obligations for superannuation funds operating under APRA’s established framework.”
Most superannuation funds have opted to keep their submissions to ASIC’s consultation private, with some citing concerns about commercial-in-confidence information. ART is the first superannuation fund to make its submission publicly available, though associations like the Super Members Council and ASFA, as well as industry fund-owned private markets manager IFM Investors, have released theirs.
In response to a question in the consultation on whether Australian regulatory settings and oversight are “fit for purpose” for supporting efficient capital raising and confidence in private markets, ART wrote: “Quite simply, yes.”
“Consistent long-term growth in both private markets AUM and fundraising in Australia suggests Australian regulatory settings and oversight have historically been fit for purpose and supportive of a growing private markets industry,” it said.
ART said that additional reporting measures aimed at increasing transparency through disclosure of more detailed investment-related information could “negatively impact funds and their members” by increasing reporting costs, revealing proprietary information that could reduce competitive advantages and creating conflict with existing confidentiality obligations between funds and their external managers.
The submission also said that concerns including the declining strength of public markets, the tokenisation of private markets and integration of digital assets are “areas that require continued regulatory focus”.
“We feel that a large, liquid and orderly public market is a critical enabler of Australian economic growth,” the submission said.
“In addition, tokenisation of private markets and digital assets need to be considered carefully as retail investors are generally far less aware of the underlying assets and structures in these arrangements. The other areas are less of a concern from our perspective as most private market investors are large investors who undertake detailed due diligence, and the size of the Australian superannuation system is a major benefit to the Australian market and already has significant regulatory oversight.”
ART said that a sustained decline in the size of Australia’s public markets could have “significant implications from a portfolio construction perspective” for super funds, and suggested that lowering and capping ASX listing fees and creating dual listing pathways – i.e. different requirements and compliance tiers based on whether a company would qualify for inclusion in the ASX300 – would encourage more companies to go public.
But it is “equally essential” to make sure Australia’s public markets are attractive to investors.
“The recent case study of James Hardie’s $14 billion acquisition of US decking group Azek and shifting the 136-year-old company’s primary listing to the New York Stock Exchange, without requiring a shareholder vote, has highlighted areas for improvement in the ASX Listing Rules around shareholders’ rights,” the submission said.
“Within its regulatory capacity, ASIC could work with the ASX to establish and conduct regular benchmarking exercises relative to global exchanges to ensure it remains competitive at both attracting companies and investors to public markets in Australia.”
Evergreen funds
Other areas – including the rapid growth of the private markets and the superannuation system generally – are of “less concern”, though ART warned that the growing number of evergreen funds and the quantum of assets they’re attracting as a result of manager and investor demand may require consideration from a “regulatory and oversight context”.
ART, citing “private market participants”, said that evergreen funds now account for approximately 5 per cent of private markets AUM globally, with estimates that this will increase to 20 per cent in the next decade.
Supporting that prediction, ART said, is the fact that in 2023 there were 520 evergreen funds globally – double the number from five years earlier. It believes that the trend of evergreen fund penetration in Australia is similar, with several large-scale investment managers – including EQT, Coller Capital, LGT Capital Partners, Hg Capital, Hamilton Lane, Brookfield/Oaktree, Partners Group, Roc Partners and Pacific Equity Partners – making public announcements about raising new evergreen funds in Australia.
“Investment managers are looking to broaden their investor base and take advantage of permanent capital partnerships while certain investors (retail investors, high net worth investors and small institutions) are looking for vehicles to access private markets without needing to meet to large minimum commitments required from traditional closed-end funds, while also seeking an element of liquidity,” the submission said.
“Whilst we are supportive of innovation in investment structures allowing more investors to access private markets, an inherent mismatch in duration and liquidity exists between liquid / semi-liquid evergreen investment structures and the underlying private markets assets, which are long-term and illiquid in nature. This liquidity/duration mismatch gives rise to potential risks that investors should be aware of.”
The submission said that key potential risks related to liquidity management and valuation are “well-governed and managed” for APRA-regulated entities via Prudential Standards SPS 530 and SPS 231 as well as additional ad hoc oversight measures undertaken by APRA, and that other market participants should be regulated in the same way.
“Regulation needs to ensure individual investors are fully informed of these risks allowing the reputation of, and confidence in, the broader private market industry in Australia to remain intact,” it said.
“Comparable regulation and oversight should be in place for entities that are not regulated by APRA to ensure protections are in place for all market participants allowing for continued confidence in private markets.”
The release of the submission follows a speech by ASIC commissioner Simone Constant at the Investment Magazine Fiduciary Investors Symposium in the NSW Blue Mountains, where she said that the “clear message” the corporate cop received from submissions was that it shouldn’t rush new regulation and shouldn’t undermine Australia’s competitiveness in the global marketplace.
“I want to assure this room that we aren’t looking to shoot first, ask questions later,” Constant said. “If anything, our approach could be described as measure twice, cut once.”
