A member body representing some prominent wealth managers is concerned super funds’ dominance is sidelining small companies in capital markets.
In its submission to ASIC’s February discussion paper on private markets, the Stockbrokers and Investment Advisers Association (SIAA) said its members “do not support over-regulating private markets” but do consider their transparency needs to be improved, particularly regarding the valuation of assets.
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 – stressed the importance of getting the balance of regulation right.
“We agree with ASIC that private markets should not be regulated in the same way as public markets,” SIAA said.
“For this reason, we do not support increased regulation of private markets. We do however support additional supervision of private markets particularly in areas such as misleading and deceptive conduct, valuation of assets and disclosure.
“There could be a positive obligation to meet certain standards, for example, advertising, and a positive obligation on how to report.”
A standout point in SIAA’s submission is its focus on superannuation funds, highlighting major shifts in Australia’s institutional investor landscape driven by the rise of large funds and their growing influence over capital raisings.
“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.”
Funds, SIAA said, will increasingly dictate how businesses grow, particularly as they continue to internalise investment-making decisions.
Stressing the importance of small- to mid-sized 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”.
A part of the solution, it said, is supporting improvements in IPO efficiency, including through shortening listing timetables by confidentially pre-vetting prospectuses and deal structures, and changing rules surrounding forecasts.
ASIC similarly highlighted the growing influence of super funds on capital markets, saying that as these funds increasingly pursue take-private deals, they are contributing to the shrinking of the ASX.
During a press conference following the paper’s release in February, ASIC commissioner Simone Constant said that the expansion of the super sector will inevitably integrate private markets more deeply into Australia’s economic structure.
“Naturally, a key focus for ASIC will be understanding how Australia’s $4 trillion super industry is influencing market dynamics,” she said at the time.
If SIAA’s feedback is any indication, wealth managers are also aware of the growing influence of super funds and recognise the need to explore ways to balance this power within capital markets.
Addressing key risks
As part of its submission, the association also highlighted key challenges to efficient capital raising in private markets – including lower transparency, uncertain asset valuations, limited protections for minority shareholders, and inconsistent disclosure standards – saying they are increasing investor risk and undermining market confidence.
“We understand that ASIC cannot supervise the private market in the same way as it does the public market,” it said. “The issues and risks it should focus on as a priority are the ones that lead to a lack of confidence in the market.”
These issues and risks, in its opinion, include how transparent a company’s disclosures are when raising capital, how it values its assets, and what mechanisms are in place to support investor exits during a liquidity crunch.
Ultimately, the association said “it is important that the investing environment remains attractive” and stressed the need for both private and public markets to “co-exist” to grow wealth.
“Our members do not consider that the expansion of investment into private markets is to the detriment of public listed markets,” it said.
“The expansion of private credit and equity is attractive to Australian investors and is a reflection of investor demand for exposure to different asset classes.”
On public markets in particular, SIAA said the regulatory burden “must be reduced to make them more attractive”.
“The governance burden on public companies and the regulations that make it difficult to list are areas requiring change,” it said.
