ASIC boss Joe Longo being kept in the dark as watchdog grapples with private market risks, regulation

Australia’s top corporate regulator fears his agency is being kept in the dark by players in rapidly growing private credit markets. Ahead of the release of a discussion paper on regulating changing markets, Australian Securities and Investments Commission chair Joe Longo said some private credit players “simply don’t like being transparent”. Mr Longo said ASIC could not have an intelligent discussion about the regulation of private markets if it did not have sufficient information and data about what was happening. “They don’t like being questioned about what they’re doing and about the standards they’re adopting, about the quality of their disclosures,” Mr Longo said. “We don’t come into this saying, ‘oh, there’s a problem in the private markets’. My starting point is I can’t do my job in the dark. “We can’t have an intelligent discussion as an economy, certainly as a regulator, without having more transparency.” ASIC’s discussion paper spells out challenges being faced by regulators around the world trying to understand the risks and challenges in the movement of funds from public markets to private equity and private debt markets. The report found unregistered wholesale funds are not required to be registered with ASIC nor provide financial reports. As a result, ASIC has no information on how many funds exist or assets under management. Information relied on by regulators came from surveys taken by third-party sources that reflected “particular biases” and certain types of fund managers were unlikely to participate. This is not just an issue confined to the big end of town but includes up to 20 per cent of the savings in Australian superannuation funds being invested in private plays both in Australia and overseas. ASIC Commissioner Simone Constant said the global economy had not yet been tested where “there is this much private capital”. “The presence of superannuation in this story means that every working Australian is impacted by the evolution of Australia’s capital markets,” Ms Constant said. ASIC intends to use the research to spark a process of consultation with the finance industry on collecting data for monitoring private markets. While ASIC was in consultation with private market investors on disclosure, it said it was also attempting to determine whether existing regulatory settings for public markets need to be re-examined and debated. “This paper is the next step in building a regulatory roadmap for Australia’s public and private markets, and we are very open to consideration of whether ASIC needs to change or reduce regulatory burden,” Mr Longo said. The report points to potential shortcomings in information from private markets about fees and expenses, valuation transparency and quality, and with the high appetite for debt among private equity plays. “The lack of transparency in private market transactions poses valuation challenges for investors when making investment decisions,” ASIC said. The lack of transparency made it tougher for regulators to make judgements about system risks, the report said. ASIC markets executive director Calissa Aldridge said the regulator needed some insights into portfolio holding and to understand when liquidity issues might arise. “We need to get some insight into how risk is being managed,” Ms Aldridge said. “We need to get some insight into where liquidity is sitting. “Funds aren’t registered with us at all, so we don’t have visibility of who they are. I think some basic levels of information to us is key.”