Super to embed private markets into structure of Australia's economy, says regulator

As super funds and private equity firms ramp up take-private deals, shrinking the ASX, the corporate watchdog is on high alert, especially with global consensus suggesting that the next financial crisis could stem from private markets.

ASIC has intensified its focus on private markets, recognising their rapid growth and the likelihood that superannuation funds will further entrench this “opaque” sector within the economy.

On Wednesday, ASIC released what chair Joe Longo described as one of its “most important pieces of proactive work” – a paper titled Australia’s Evolving Capital Markets: A Discussion Paper on the Dynamics Between Public and Private Markets.

The paper, which seeks to open a discussion on ASIC’s regulatory approach and gather actionable ideas to improve Australia’s capital markets, highlights a clear connection between the increasing role of superannuation in the economy and the growth of private markets – an area where ASIC currently lacks visibility.

The paper said that as public markets shrink and “opaque” private markets expand, ASIC is keen to explore how it can make public markets more attractive and enhance transparency in private markets without hindering their evolution.

“At present, ASIC’s data and information gathering powers are inefficient and incomplete. We simply can’t do our job properly if we are in the dark,” Longo said at a media briefing on Tuesday.

Longo said that ASIC lacks the robust, recurrent data on private markets that international regulators have, making it harder to identify both risks and opportunities.

“In other markets for example it is standard practice for a regulator to collect data for example the SEC and ESMA receive reports about fund liquidity, risk metrics, and management, and portfolio holdings,” the chair said, adding that getting the settings right is crucial for the future of Australia’s economy.

“Public and private markets support one another, and both are critical to our economy. The critical point for ASIC is whether there is a need for interventions to address risk or adjustment to how regulation operates to take advantage of opportunities important for the attractiveness of our capital markets.”

Super driving distinct local story

A key question in ASIC’s paper is how the continued growth of superannuation funds will impact Australia’s capital markets.

During the media briefing on Tuesday, ASIC commissioner Simone Constant said that while the “story of changing dynamics” between public and private markets is not uniquely Australian, the country’s superannuation sector could lead to unique local outcomes.

“At least one key element means the story could unfold differently here than elsewhere, and that is our superannuation sector,” she said.

Constant emphasised the superannuation sector’s rapid growth and its subsequent increasing influence on capital markets, saying that, as highlighted in the paper, the sector’s growth will undoubtedly embed private markets into the structure of Australia’s economy.

“Naturally, a key focus for ASIC will be understanding how Australia’s $4 trillion super industry is influencing market dynamics,” she said.

ASIC’s paper said that Australia’s superannuation sector, now valued at over $4 trillion, has outgrown the ASX, which stands at $3 trillion. The sector has grown 118 per cent over the past decade and has rapidly consolidated, shrinking from 249 APRA-regulated funds to just 95, with the top 10 funds now controlling 65 per cent of the market, up from 52 per cent, and the top five holding 44 per cent, up from 32 per cent.

This increasing concentration has had several implications for market dynamics, the paper said, with larger funds requiring bigger investment deals to make meaningful portfolio allocations, which are often found in alternative investments including in international public markets nd domestic and international private markets.

Namely, over the past decade, funds’ allocations to domestic public equities have remained steady at 24 per cent and investments in international public equities have increased from 21 per cent to 30 per cent.

While ASIC didn’t provide specific percentages on the growth of funds’ allocations to private markets, it pointed to reports submitted to APRA, which suggest funds allocate between 0 per cent and 38 per cent of their total assets – comprising a mix of cash, public assets, and private assets – to private assets.

Further data derived from the prudential regulator and, included in the paper, revealed that Australia’s two largest funds, AustralianSuper and Australian Retirement Trust, allocate some 22 per cent of their portfolios to private markets, with nearly half of this invested in international assets.

“We are keen to understand how the growing dominance of superannuation in Australia’s economy is influencing our markets, given its crucial role in securing our financial wellbeing on retirement,” Longo said.

Expanding on this, Constant said that while ASIC aims to encourage funds to continue investing in the country’s economic growth and, inevitably in alternative markets, the paper seeks to understand how to ensure their balances in “opaque” markets are protected.

“As the paper asks, how do we make sure that super funds can continue to invest in Australia’s growth while ensuring that Australian super balances are being protected in the more opaque private market investments?” Constant said.

“Without the benefit of some of the tools in the listed market, how can we, along with our peer regulators, ensure confidence that super funds are holding and valuing their private market assets in the best interest of members?”

Shrinking public markets

Turning to the impact the growing preference for private markets has had on public markets, ASIC said that Australia’s public equity markets now hold a smaller share of global markets than a decade ago.

According to ASIC’s paper, the ASX’s share of global market capitalisation fell from 1.7 per cent in 2014 to 1.4 per cent in 2024, despite reaching a record-high valuation of over $3 trillion. Meanwhile, NYSE and NASDAQ grew their dominance, now accounting for 52 per cent of global public equity market capitalisation, up from 34 per cent in 2014, on the back of foreign listings, including four from Australia in 2024.

ASIC highlighted major private equity deals, such as Blackstone’s $24 billion acquisition of AirTrunk and the IFM-led buyout of Sydney Airport for $23.6 billion, as accelerators of the shift away from Australia’s public markets.

Moreover, it pointed to a significant reduction in IPO activity in Australia, saying that it has hit its lowest level in over a decade, plummeting from 210 new listings in 2021 to 94 in 2022, 38 in 2023, and just 28 in 2024. In contrast, 400 delistings have occurred in the past three years, often due to acquisitions or private takeovers.

While the regulator views the downturn in public markets as likely cyclical, Longo expressed concerns about their long-term future.

“History tells us that the current downturn in Australian IPOs and public companies is likely cyclical, deterioration in the quality, diversity and depth of public companies would have significant adverse effects on the economy and on investors’ participation in it,” Longo said.

“We can’t be complacent about the future of Australia’s public equity markets.”

With more companies opting to stay private or go private, ASIC put the value of Australia’s private capital assets under management at $148.6 billion in 2024, up 161 per cent from $57.1 billion. Over the decade, private equity assets grew by 131 per cent to $65.9 billion, while private credit assets saw a 240 per cent increase to $2.8 billion. Private real estate, infrastructure, and resources AUM expanded 189 per cent to $80 billion.

On private credit in particular, Constant said that while it currently makes up a small part of the Australian economy, speculation suggests it could be the source of the next financial crisis.

Agreeing with the Reserve Bank’s assessment last year that private credit is not “systematically important” to the Australian economy, she said the corporate regulator anticipates this to change.

“We at ASIC anticipate more failures in some private credit investments and Australian investors will lose money, that’s why ASIC is increasing its focus on private credit,” she said, adding that the regulator’s goal is not to constrain participation, but to ensure investment offers comply with existing rules.

Constant said that as part of its ongoing private credit surveillance, ASIC is focusing on “fund governance, valuation practices, accuracy of statements, management of conflicts of interest, and fair treatment of investors”, with an update due later this year.

The path forward

ASIC’s paper is a preliminary view and aims to kick off the debate on this “important task”, the regulator said, adding that an update will be released later in 2025 to reveal key industry feedback.

“We’re seeking actionable ideas for addressing the issues and questions this paper raises,” the chair said.

Ultimately, both Longo and Constant highlighted “better data” as key to managing risks, with feedback expected to help the regulator determine not only whether shrinking public markets are a structural or cyclical risk, but also whether the growth of private markets is here to stay.

“That’s something we must understand,” Constant said.

“What’s the future direction of public markets, structural or cyclical, that’s something we’ll be exploring when we get the feedback to our paper. What are the structural changes around private markets, the structural direction there, and of course what is the influence and impact on each other, and the regulatory impact on that direction.”

Longo said that feedback will also help the regulator decide “whether there is a need for intervention” in private markets and whether that responsibility falls to ASIC or another regulator.

Submissions on the paper are open until 28 April.