Australian Securities and Investments Commission will be “accelerating” its monitoring of private credit exposures and valuations, while acknowledging the asset class can be “good for the economy … if done well”.
ASIC commissioner Simone Constant told the Investment Magazine Fiduciary Investors Symposium in the NSW Blue Mountains there is greater scope for more targeted enhancement and active and ongoing monitoring and supervision in wholesale and retail private markets, even though the regulator believes the asset class is largely meeting the needs of institutional investors.
“We’ve heard that the growing availability of private capital has met a real need, and if done well, private credit is good for both sides of the economic equation – investors and borrowers – and can complement the banking system,” Constant said.
“But while there’s limited desire for increased regulation of private markets, there is an openness to increased supervision, especially when it comes to things like valuation of assets, management of conflicts of interests, management of sensitive information, meaningful and effective disclosure of fees and risks, fair treatment of different investor types, as well as further information from ASIC on what good could look like.”
Constant said one of the regulator’s greatest concerns is “where folks are getting into private credit that’s actually more like equity”, and ASIC is worried about the trend of “investments that some people in this room might think of as equity that have very little equity in them are being described as ‘private credit’.
“Disclosure is important, but disclosure is only important if it’s effective,” Constant said.
“Before we get to effective disclosure a thesis is forming that we need an alignment of common terms. What is actually credit? What is investment grade? And something I’m finding quite strange is how loosely people use the term investment grade.”
Submissions released
ASIC on Wednesday released 55 public submissions to its consultation paper on private and public markets. Most came from private market managers, industry bodies and associations, with all major super funds opting to keep their submissions confidential.
The “clear message” in those submissions was that ASIC shouldn’t rush new regulation and shouldn’t undermine Australia’s competitiveness in the global marketplace, Constant said.
“I want to assure this room that we aren’t looking to shoot first, ask questions later,” she said. “If anything, our approach could be described as measure twice, cut once.”
But Constant also said that part of the reason it will be necessary for ASIC to evolve the nature of its regulatory approach is the changing footprint of superannuation funds in markets.
“We also need to think about ‘what’s left over’ for retail direct investment in a market with such significant institutional players,” she said.
“We’ve also heard that institutional investors – such as super, and other fund managers – are focused on improving measures to support market integrity in a manner consistent with their footprint, such as information sharing and the management of conflicts and risk.
“We are seeing an appetite though for more insight on what good looks like in terms of governance, disclosure, and conduct practices. There is more for us to do here in this regard.”
Constant said that ASIC also needed to improve its own data gathering capabilities, with many of the submissions it received “better placed” to size up the private markets in Australia than the regulator was.
“They pointed it out and found we were seriously underestimating it,” Constant said.
“This isn’t just an issue for regulators – the market itself is telling us it may need more transparency as it grows and matures, and that we can learn from global best practice in this regard.”
