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ART warns against regulatory overlap in super sector oversight
ART has cautioned regulators against imposing overlapping obligations on superannuation funds already operating under APRA’s comprehensive framework, arguing that additional oversight should be “carefully targeted to address potential gaps in other parts of the market”.
In a detailed submission on the future of private markets regulation, the Australian Retirement Trust (ART) outlined the rationale behind its long-standing allocation to private assets, citing diversification benefits, lower volatility, greater portfolio control and access to a broader investment universe.
The fund, which has been investing in private markets since the mid-1990s, said: “By providing an alternative return source with differentiated risk/return characteristics, unlisted assets increase diversification and reduce overall portfolio risk as the assets can be relatively uncorrelated to business cycles.
“By responding differently to fluctuating market conditions, this diversification through market cycles can result in enhanced return stability and portfolio quality,” it added.
ART also highlighted its ability to influence governance and portfolio construction through private investments, noting that such control enables the fund to pursue high-conviction sectors aligned with member outcomes.
“We are engaged to deliver the best risk-adjusted returns for our members, and investing into high conviction sectors assists in facilitating this objective.”
Moreover, it argued that investing into private markets widens the investment universe, providing differentiated revenue streams and enhancing its ability to deliver superior risk-adjusted returns to their members.
Asked if regulatory settings and oversight are fit for purpose to support efficient capital raising and confidence in private markets, ART said: “Quite simply, yes.”
However, the fund did highlight a “structural shift” underway in private markets globally, including in Australia, that, it said, may require consideration from a regulatory and oversight context.
“The number of private markets evergreen fund structures and private markets evergreen AUM is increasing rapidly driven by both investment manager and investor demand,” it said.
Citing data that suggests evergreen funds’ share of global private markets AUM is expected to rise from 5 per cent to 20 per cent over the next decade, ART flagged an “inherent mismatch in duration and liquidity” between these vehicles and the illiquid assets they invest in.
This mismatch, it said, “gives rise to potential risks that investors should be aware of”.
“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.
“These risks are well governed and managed for APRA regulated entities via APRA Prudential Standards SPS 530 and SPS 231 plus additional ad hoc oversight measures undertaken by APRA. 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,” ART said.
Moreover, the fund also identified tokenisation of assets, digital assets, and the declining strength of public markets as areas that warrant regulatory focus.
However, ART said regulatory scrutiny should not hinder innovation or long-term economic growth and must take into consideration the circumstances applicable to different market participants.
Highlighting existing APRA standards, ART noted that superannuation funds are already subject to robust governance frameworks that cover investment due diligence, liquidity planning, valuation processes and operational risk management.
It warned that regulatory action, if poorly targeted, could introduce unnecessary complexity and cost.
“Increased regulatory focus, in general, can potentially create a more restrictive economic environment, affecting the competitiveness of superannuation funds and reducing long-term returns to members,” it said.
On the broader investment landscape, ART also expressed concern over the sustained decline in the number, size or sectoral spread of listed entities, which it said could negatively impact portfolio construction and drive more capital offshore.
A shrinking public market could also weaken Australia’s funds management industry and reduce the country’s appeal to global capital, it added.
AUTHOR
Maja Garaca Djurdjevic
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