Home / Regulation / ‘Changing dynamic’ between public and private markets worth watching: ASIC

Private markets are worth around $14 trillion globally, ASIC believes. It's not sure, and that uncertainty hints at the wider problem – private markets, and their effect on public ones, is still largely a mystery.

The corporate regulator has concerns about the rapid growth of private markets at the expense of public listings, with the speed of capital see-sawing from one end to the other the subject of a discussion paper to be released in the coming weeks.

At a recent speech in front of the Parliamentary Joint Committee on Corporations and Financial Services at its inquiry into ASIC oversight, commissioner Joe Longo explained that as a “modern, confident and ambitious” regulator, it was working to proactively identify developments that could sully its reputation as custodian of “one of the cleanest listed equity markets in the world”.

The decline of public markets has therefore not escaped its attention. Within the private markets realm, private equity’s ascent has been well documented over the past few decades. But with banks broadly subject to higher lending standards and wary of inflated market risks, a burgeoning class of private debt providers have joined the private equity brigade. They lend to companies that banks are wary of, with loan terms that are more flexible. Returns are attractive, and stable, but relatively untested in a serious downturn.

The unknowns don’t stop there, with the regulator unclear on just how much money is sloshing around private markets. “There are estimates that global private capital assets under management are over US$14 trillion – triple a decade ago,” Longo said. “This is an estimate as there are gaps in the data to size and monitor this sector.”

The growth of private markets isn’t necessarily a negative, he explained, noting that 20 per cent of the nation’s superannuation is invested in private capital, which plays “an important source of funding for our economy”.

But this growing importance is exactly why ASIC – and regulators around the world – need to get a handle on it.

“This year we have been leading a conversation with market participants about the role of public and private markets,” Longo said. “The commission has been involved in a range of panels and roundtables recently, examining the changing dynamic between public and private markets, including the growth of superannuation, to ensure they continue to deliver good outcomes for consumers and support the efficiency of our capital markets.”

ASIC is putting together a discussion paper on the back of these discussions, Longo said, which will be delivered in the next few weeks alongside research commissioned by the regulator on the current state of Australian financial markets.