Australia's Evolving Capital Markets: A call to action

The Australian Securities and Investments Commission (ASIC) has released the Australia's Evolving Capital Markets – a discussion paper on the dynamics between public and private markets. The paper serves as a call to action for market participants to engage with ASIC and contribute to shaping the future of Australia's private and public capital markets.

What are the key takeaways?

While ASIC is not seeking to stymie private market growth, and has acknowledged it does not regulate the merit of transactions, it is clear ASIC is increasing its regulatory focus on private markets and, in the medium term, reform is looking likely – particularly with respect to reporting and valuations. The exact scope and nature of that reform is however not yet clear.

Given ASIC has flagged concerns around a lack of transparency for private markets, increased reporting – particularly on returns and valuations – is a logical starting point to ensure ASIC has greater access to data both to facilitate and enable it in fulfilling its supervisory role and inform future policy decisions. Valuation methodologies are also on ASIC's radar, and ensuring consistency of approach in the sector may be another area of focus for reform.

ASIC has also flagged greater surveillance (and, by extension) enforcement action around conflicts of interest (particularly in take private transactions), information asymmetry and insider trading.

Finally, ASIC has also stated that, in conjunction with the ASX, it is exploring ways to refine the IPO process and listing rules to increase the attractiveness of the public equity markets in Australia for companies considering their capital raising options.

What is ASIC concerned about – and is it right?

ASIC is concerned about the future of Australia's public equity markets. It considers public markets serve a public good and provide an "important pricing and valuation benchmark of broad public benefit and act as a barometer of the economy's health" and that a deterioration in public equity markets would damage the economy, liquidity and retail investor participation. While ASIC considers recent declines in listings are likely cyclical, and Australian listing settings are attractive, dynamics and global trends are shifting.

Report 807 (commissioned by ASIC) concluded that it is too early to call the current reductions in listing as a "structural shift" in Australia and consider this to be more cyclical in nature. Mainly focused on the US market, Report 807 identifies the following three main hypotheses for the reasons for the decline:

• an increase in the regulatory burden and the costs associated with being listed;
• the nature of companies has changed (notably that companies now have lower capital needs and more intangible assets – eg. tech companies) reducing the benefits of being listed; and
• the rapid growth of private markets has made it easier for private companies to access capital.

Of these, the regulatory burden and explicit costs of being listed are considered to be small contributors. We need to be convinced of this, and the Report acknowledges that more research needs to be done to evaluate the costs and benefits of the disclosure and governance requirements imposed on Australian listed companies. For example, the cost to companies of complying with the continuous disclosure requirements that require listed companies to report all material, price-sensitive information to the ASX immediately would be challenging to quantify, but would include things like higher insurance costs.

In our experience, and noting the increasing regulatory burden on public companies over the past decade or so, seasoned directors are increasingly questioning the risk versus reward profile offered by the listed environment. Listed companies, and their boards, are subject to greater media scrutiny and are a greater target for class actions. A loss of experienced board members or pipeline would be further detrimental to the public markets.

ASIC appears to be cognisant of the increasing complexity of the regulatory environment, with Joe Longo using his keynote speech at the Australian Institute of Company Directors (AICD) Australian Governance Summit on 12 March 2025 to confirm the appointment of a Simplification Consultative Group, comprising 10 consumer, business and industry leaders, to improve how ASIC approaches regulation, with a discussion paper expected to released in the third quarter of 2025.

The availability of private capital is also influencing capital-raising decisions, with many companies opting to stay private due to the increased availability of equity and debt capital through private channels. The decline in public markets is also being partially driven by take-private activities, where significant Australian public companies have been taken private without new listings to replenish the public market. Separately, the top five take-private and private-to-private transactions from 2022 to 2024 had an aggregate acquisition value of A$70.6 billion, significantly exceeding the value of new public listings.

It is estimated global private capital fund AUM has grown three-fold over the past decade to US$14.6trillion in June 2024. Domestically, AUM in Australia-focused private capital funds has tripled from A$5.7 billion in 2014 to A$148.6 billion in March 2024 – with private equity and real estate taking the lion's share. These private capital fund assets hold A$43.8billion of "dry powder" (capital committed for private market funds but not yet deployed) as at March 2024. That said, Australian-focused funds growth has been slowed recently by the increased costs of debt and remain small relative to the market capitalisation of Australian public markets. Future deployments may also be either more challenging – or at least more risky, making striking a deal acceptable to both sides more challenging – in an environment of global political uncertainty.

Historically in Australia, access to private markets has been limited to wholesale investors (subject to limited exceptions). Private markets are not subject to same level of regulation as the public equity markets. Additionally, the growth of private markets is driven, at least in part, by the perception that private market assets outperform public markets, although in ASIC's view this is difficult to measure due to the lack of transparency and standardised reporting in private markets.

As private markets grow, retail investors are being increasingly provided access to private asset investments, including indirectly through managed investment schemes and superannuation funds. That said, we note that both managed investment schemes and superannuation funds employ sophisticated management teams tasked with assessing the relative risks and rewards of the investment options available to them – and retail investors may be attracted to harness or benefit from these skill sets when choosing to pursue an indirect investment option, which may also provide exposure to a diversified portfolio, rather than investing directly in individual stocks. Further, superannuation funds are themselves also publicly benchmarked against each other, allowing retail investors (who can choose to change funds) the opportunity to assess their relative performance.

Globally, jurisdictions are considering how to facilitate retail investors' access to private markets, and how to balance increased access with investor protections. From a retail investor's perspective, ASIC is concerned there are potentially heightened risks from private market investments, including limited access, increased vulnerability due to leverage, liquidity challenges, complexity and information asymmetry. It has identified reporting, valuations and conflicts as particular focus areas.

This reflects concerns raised previously by ASIC that the monetary thresholds under the wholesale investor test for offers of securities, and the wholesale client test for financial products and services, should be increased in light on the increasing values of residential real estate in Australia. This led to an inquiry by the Parliamentary Joint Committee on Corporations and Financial Services, which sought and received a number of submissions. However, in its report released in February 2025, the Committee considered that "there is a lack of evidence showing that this increase to the potential pool of wholesale investors has in fact led to any significant or systematic harm to particular classes of investors, or to the Australian investment industry more generally." The Committee also stated that it was not persuaded by prima facie arguments that an increase in the proportion of Australians that can qualify as wholesale investors necessarily resulted in a cohort of wholesale investors who are vulnerable and therefore unqualified to participate in wholesale markets. In this regard, it pointed to the increased financial sophistication of Australians due to higher levels of tertiary education, better access to information and financial advice and increased individual net worth and involvement in management of personal financial affairs.

ASIC has noted that valuations often rely on methodologies and judgments rather than publicly available trading prices, which may not always be independent and may not be responsive to changes in market conditions, particularly when private assets experience distress. Publicly available trading prices are however themselves underpinned by judgments and methodologies.

It has also raised concerns around misalignment between fund manager incentives, related party transactions and treatment of confidential information and investor interests. For example, ASIC considers that, since private capital funds fees are typically tied to performance, there are incentives for fund managers to provide misleading information about fund performance. ASIC also considers it is more challenging to assess the performance of private capital because this relies on information provided by the fund managers. That said, public company analysis is informed by information disclosure from the public companies themselves, large proprietary companies are generally also required to lodge audited reports annually and, in any event, increased reporting would be unlikely to impact on deliberately fraudulent activities.

From ASIC's own perspective, it has also flagged that limited transparency reduces ASIC's ability to assess the overall health of capital markets, which is important for a stable economy. It has updated its 2025 strategic priorities to include driving consistency and transparency across markets and products.

ASIC also highlights the growing dominance of Australia's APRA-regulated superannuation funds which are becoming increasingly concentrated and, in terms of scale, were broadly equal to the market capitalisation of public companies on the ASX as at December 2024. They are expected to surpass the market capitalisation of the ASX in 2025. Big super makes significant use of private assets, with allocations between 0% and 38% currently held in private assets (domestically and internationally), and public statements have been made by super funds that this intended to increase. The significant role of superannuation funds in Australia's economy is expected to further drive the growth of private markets, as these funds seek larger investment deal sizes and more control over assets.

However, as noted above, big super funds have experienced professional management teams that are seasoned in assessing and interrogating value propositions and have the necessary commercial leverage (more so than retail investors) to demand the requisite information is shared with them and the capacity to conduct comprehensive due diligence processes with the support of specialist financial, legal, tax and other advisers. Arguably, companies seeking investment may also be more willing to share such information in a confidential environment and are more commercially motivated to do so in circumstances where they are specifically seeking investment.

While the private credit market is not yet considered systemically important in Australia, it is at historically high levels and untested by prior crises. Joe Longo considers that failures in private credit investments are on the horizon, leading to potential losses for Australian investors. ASIC is concerned about potential flow-on effects this may have on broader market sentiment, integrity and stability. No company is immune to failure and, as acknowledged by ASIC, the Australian market is concentrated, with most companies in the financial and mining sectors, and less represented in sectors that will drive growth in our increasingly digital future.

In this context, ASIC's view is that the growth in private markets is accompanied by a need for robust data to identify and respond to risks, as the current data on private markets is limited and not timely or granular. ASIC is seeking feedback on whether the current regulatory approach is appropriate and what improvements could be made to support efficient capital raising and confidence in private markets.

What is next?

ASIC is seeking feedback by 28 April 2025, with further updates to be provided later in the year.