ASIC’s Report on Private Markets: Key Takeaways for Financial Services

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ASIC’s latest discussion paper on private markets raises questions about the risks and opportunities in Australia’s capital landscape. Following a boom in private capital, the paper aims to understand how to maintain open, accessible and supportive private and public markets that foster economic growth while mitigating risk.

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‘Private capital' refers to private equity, private credit, infrastructure and property funds, as well as superannuation monies invested in these asset classes. Understanding the regulatory scrutiny and shifts in this space is crucial for navigating compliance and managing risk and opportunities.

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What’s Driving Growth in Private Markets?

The key factors driving growth in private markets include:

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• A shift from public to private capital: Australia’s Initial Public Offerings (IPOs) have plummeted, reaching its lowest activity in two decades in 2024. Meanwhile, total funds raised surged 387% between 2023 and 2024. 
• Institutional investment trends: Superannuation funds are allocating more capital to private assets for diversification and long-term returns.
• Macroeconomic factors: Higher interest rates, geopolitical tensions and tighter regulations on public companies increase the appeal of private markets.

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The big question is whether this is a structural or a cyclic shift — and ASIC is remaining cautious. 

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Key Risks Identified in ASIC’s Report

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1. Differential treatment and investor classification concerns: Certain private market funds may offer preferential treatment to some investors (such as priority redemption rights or access to information) and may misclassify retail investors as wholesale investors, exposing them to higher-risk investments with less consumer protections.
2. Valuation practices: Inaccurate valuations impact entry and exit prices, performance fees and calculations.
3. Liquidity and access to funds: Private investments are often illiquid, making it challenging for investors to exit their investments in all market cycles.
4. Conflicts of interest: Potential or perceived conflicts of interest may arise between fund managers and investors regarding portfolio management or fees.
5. Leverage and debt concerns: The rise of private credit potentially introduces systemic risks into the Australian prudential system, particularly in an uncertain economic climate.
6. Regulatory intervention: The question of whether additional reporting or disclosure requirements are needed in private markets remains.

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Opportunities for Financial Services Firms

Where there’s risk, there’s opportunity. Financial services firms can take advantage of these prospects in the following ways:

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Mitigate the Risk of Enforcement Action 

Review your existing internal compliance processes against industry standards, including confidentiality and valuation practices. Carefully revise any offering documents and marketing collateral to ensure statements are accurate, complete and suitably qualified for the asset classes.

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Assess Retail Access

Consider the appropriateness of distribution conditions on private funds available to the retail market. 

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Stay Compliant in Private Markets

ASIC’s report signals that while private markets present lucrative opportunities, increased oversight is coming and enforcement action is highly likely. Contact PMC Legal to ensure your legal and compliance framework in private markets is sound.

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