As ASIC looks to crack down on private markets, the Super Members Council is calling for a “balanced review” of both its opportunities and risks.
Industry stakeholders are continuing to publish their responses to ASIC’s consultation on capital markets, following the release of its discussion paper earlier this year.
Last week, the corporate regulator’s deputy chair Sarah Court acknowledged the quality of the feedback received, describing some submissions as “really good, thoughtful and helpful”.
Court also reiterated that ASIC is not seeking to impose heavy-handed regulation on private markets but is aiming to deepen its understanding of what she called an inherently “opaque” sector.
“We’re certainly not saying we need to go heavy-handed regulation in private markets, but as private markets, private credit increases, we are concerned about the lack of transparency in those markets,” she said.
The Super Members Council (SMC) is one of the latest industry groups to publicly release its submission to ASIC. In its response, the advocacy body urged for the regulator’s review of capital markets to be “balanced in its consideration of both opportunities and risks”.
“While the discussion paper focuses on risks, it overlooks the many strong benefits of private markets,” the SMC said.
“Our submission highlights the importance of private market investments by funds on behalf of their members and the clear benefits these investments deliver, balancing this with the risks of public markets.”
It noted superannuation funds’ longstanding investment in private markets, which has delivered higher net returns and often lower risks than comparable listed asset classes.
“Profit-to-member superannuation funds have long pioneered investment in unlisted assets, particularly infrastructure. Analysis by Frontier Advisers for SMC shows that approximately 16.5 per cent of assets of APRA-regulated superannuation entities are invested in unlisted/private market assets such as property, infrastructure, private credit and private equity,” the SMC said.
“Investment by superannuation funds in unlisted asset classes has enabled higher returns, lower risk, reduced volatility and improved portfolio diversification.”
These attributes have delivered strong benefits to super fund members, it said, as well as the country’s broader financial system.
“The role of superannuation as a powerful economic stabiliser is significant – this should have been more extensively highlighted in the discussion paper,” the body said.
The SMC also referenced the RBA’s latest Financial Stability Review, which said that while the super sector has historically supported financial stability, policy interventions impacting liquidity could jeopardise this.
It pointed towards fundamental system changes, such as the Coalition’s proposed early withdrawal of super for house deposits, which could put this stability and investment returns in danger.
“New analysis by Frontier Advisers finds that if current preservation rules were relaxed such that superannuation funds could no longer act as long-term investors, and were no longer able to invest in unlisted assets, net returns could be lower by 0.3 – 0.6 per cent each year,” it said.
A 0.5 per cent reduction in net returns could decrease a member’s super balance by up to 14.1 per cent or $246,200 over their working life, the analysis also discovered.
Earlier this year, the Association of Superannuation Funds of Australia (ASFA) CEO Mary Delahunty said that any increase in regulatory burden could disincentivise funds from diversifying out of listed markets.
Responding at the time of ASIC’s discussion paper release in February, Delahunty also highlighted the importance of private markets for improving diversification within super fund portfolios, thereby “improving the reliability of long-term returns for members.”
In a brief statement to Super Review sister brand InvestorDaily in the same month, Matt Linden, executive general manager of strategy at the SMC, also emphasised the vital role of private markets in funds’ investment strategies.
“Profit-to-member super funds have long invested in unlisted assets such as roads, airports, container ports and energy grids,” Linden said.
“These assets form a crucial part of profit-to-member super funds’ investment strategies and have helped to deliver impressive long-term risk-adjusted returns for members.”
