A major super fund has defended its use of private markets in a submission to ASIC, asserting that appropriate governance and information-sharing practices are present in both public and private markets.
The use of private markets by superannuation funds has become a contentious issue following ASIC’s February discussion paper.
The regulator suggested that as funds increasingly engage in take-private deals, they may inadvertently contribute to the shrinking of the ASX.
Additionally, ASIC is concerned that, due to their growing financial dominance, superannuation funds may eventually embed private markets into Australia’s economic structure – an issue both ASIC and the Reserve Bank have flagged, given the illiquid and “opaque” nature of these assets.
However, in its submission, HESTA argued that the success of private markets plays a crucial role in economic growth, both directly – through value and job creation – and indirectly, by fostering innovation, spreading value, and driving technological advancements that benefit the broader economy.
“Private markets are particularly well-suited to fostering investment in real estate and infrastructure where investments are capital-intensive and provide a natural hedge against market volatility and inflation due to their stable cash flows, inflation-linked revenues, long-term nature and tangible asset value,” the fund argued in its submission.
“Private markets are also ideal for new and emerging companies where large upfront capital investment is needed to develop and pioneer new technologies or groundbreaking ideas.
“By enabling early access to transformative opportunities, these markets unlock the potential for substantial financial returns.”
HESTA emphasised that early-stage investments are key to advancing innovation that addresses pressing global challenges and supports long-term sustainability.
On the topic of governance in private markets, an area of particular concern for ASIC, HESTA stated that “appropriate and adequate levels of governance and information exist and are shared with investors”.
While acknowledging that the mechanisms for achieving transparency differ between the two markets, HESTA emphasised that it is essential for ASIC to work with investors to understand the impact of any regulation and the importance of maintaining existing frameworks in private markets.
“When compliance measures are not targeted or purposeful, there is material risk of overregulation, which can diminish flexibility, diminish returns, erode investor confidence, and dampen or discourage activity in these markets.”
Ultimately, HESTA emphasised the complementary role both markets play in fostering diversified global portfolios for institutional investors.
“Private markets enable institutional investors to access unique investment opportunities with strong governance rights and alignment of investment horizons,” the fund said.
Moreover, HESTA stressed that, with the benefit of being long-term investors, institutional investors can provide patient capital invested alongside and supporting government investments where risk-adjusted returns and member interest are aligned.
“The success of these investment models does require there to be stable regulatory and contractual frameworks that allow all parties to thrive,” it added.
However, in its submission to ASIC, the Stockbrokers and Investment Advisers Association (SIAA) – which among others, counts Bell Financial, E&P Financial, JBWere, Morgan Stanley Wealth Management, LGT Crestone Wealth Management, and Ord Minnett in its member ranks – said it is concerned super funds’ dominance is sidelining small companies in capital markets.
“Currently there is a concentration of capital in industry super funds,” SIAA said. “As large super funds do not typically invest in small companies, this restricts the avenues available for these companies to list … This has impacted a whole level of capital raising in the Australian market,” it added.
Funds, SIAA argued, will increasingly dictate how businesses grow, particularly as they continue to internalise investment-making decisions.
Stressing the importance of small- to mid-size companies to the economy, SIAA said “there is a need to consider how to ensure the next generation of companies has access to capital and an avenue to listing”.
