ASIC chair Joe Longo “welcomes the growth of private markets” and says it’s not the regulator’s role to direct investors into one asset class over another. But he remains concerned about valuation practices and fee disclosure across the sector, and particularly in private credit.
“In our work in the private credit space, we’re seeing some behaviours that aren’t very attractive,” Longo said in a presentation at an American Chamber of Commerce event in Sydney on Wednesday.
“For example, the way some fees are calculated with reference to the carrying value of the underlying loans when some of those loans aren’t performing, which creates the impression that the fund is worth more than it is. And then the different approaches and valuation methodologies. Some funds are getting really good, independent valuations and others aren’t.”
Longo reiterated that ASIC wouldn’t rush to introduce more regulation, but that it wanted “confident participation in growing markets”.
“This is why it surprises me when people say ‘Why are you asking?’. What do you mean, why am I asking? We’re the national markets regulator,” Longo said.
“We should all be asking. It’s our money going in there – superannuation money, insurance money, shareholder money. So I don’t think people should be defensive about it, I think they should be open, because openness leads to, I think, a better society and better regulation.
“I don’t want to be picking up the pieces three years from now; I want people to know what they’re doing and taking informed risk.”
Longo’s comments come after a speech by ASIC commissioner Simone Constant at the Investment Magazine Fiduciary Investors Symposium when she said that the regulator would be “accelerating” its oversight and monitoring of the private credit sector.
“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.”
Step-change in member services
Longo made his comments on private markets following a speech on member services and ASIC’s multi-year program to drive a “step-change” in the way trustees deliver them, which has included a review into claims handling times at a number of major super funds.
ASIC found that no trustees in the review monitored or reported on end-to-end death benefit claims handling times, nor did they have performance objectives for them, and many trustees didn’t monitor how long claims remained open for.
“If trustees had acted on this data – as we did – they may not be facing enforcement action,” Longo said.
“All this points to the cold hard truth that super trustees have to get a grip on their data, systems, and processes. They have to know what’s going on in their own business. This is why ASIC has been calling on the sector to improve, following an ongoing thread of governance failures. And why we warmly welcome the government’s proposed mandatory and enforceable service standards to drive improvement in trustee conduct.”
Longo said that ASIC’s next focus would be to address “board blind spots” by examining how they learn from and respond to the complaints they receive.
“Why? Because no business can thrive without understanding the people it serves. To do this, it needs market feedback,” Longo said.
“And a primary source of this feedback is – and always will be – customer complaints. A trustee’s approach to complaints is a clear and meaningful measure of whether they’re focused on the interests of their members. It also indicates the maturity of the trustee’s approach to risk. That’s why ASIC has been urging industry to act on complaints for some time now.
“Let’s not forget, it’s already an enforceable requirement to regularly analyse complaint data to identify systemic issues… a failure of data, systems, and processes doesn’t just let their members down – it means trustees are failing to comply with their obligations. And, where appropriate, ASIC will pursue enforcement action in response to that failure.”
