Earlier this year, the corporate regulator announced an increased focus on capital market structural changes, including a review of “other products and markets” such as debt markets, along with increased oversight of private markets as part of its expanded strategic priorities.

The move follows a recent decline in listed companies and significant growth in private equity funds in Australia, which have almost tripled since 2010. to approximately $66 billion in assets under management at the end of June last year.

Speaking on Thursday at ASIC’s annual forum, the regulator’s chairman Joe Longo said the lack of transparency in private markets, including private credit, was a cause for concern.

"Regulators like us and prudential regulators worry that if something goes wrong in the private credit space, we won't see it and it will have a contagion effect," Longo said.

"We need to know what's going on in terms of capital raising and efficiency, and I'm certainly interested in any regulatory prerequisites that are within ASIC's power to change the levers to encourage more efficient capital raising."

However, according to a platform provider, applying market-level public oversight to private markets to address risks could have significant implications for private market participants.

PrimaryMarkets chief executive Jamie Green noted that private markets "inherently thrive on privacy and strategic control over transactions" and increased scrutiny of the sector could lead to "more conservative investment behavior and a shift in investor sentiment".

"When ASIC steps in to review transactions in the private market, it can undermine the trust and discretion that normally characterizes these markets," Green said.

"Investors may become more cautious about engaging in private market transactions, particularly in sectors or industries where regulatory intervention is more likely."

Such changes in investor sentiment could lead to a slowdown in deal-making activity, affecting market liquidity and valuation, he added.

Additionally, according to Green, greater regulatory scrutiny of private transactions could also affect public markets, particularly if the Australian Securities and Investments Commission (ASIC) investigates high-profile transactions that may "cast a shadow over related public companies or sectors".

"For example, if an organization is under investigation for conducting a particular transaction, investors in publicly traded companies in which that organization has a stake or that are in similar sectors may re-evaluate their exposure, leading to volatility in those stock prices." stocks," Green said.

While the intention of the increased oversight is to protect investors and promote transparency, Green warned that the short-term impact of ASIC's review, which is expected to take at least two years, could lead to "increased uncertainty, reduced market confidence and potential disruption in transactions - doing activity".

"In the long term, the review could lead to structural changes in private market operations, with increased costs and regulatory burdens affecting both investors and companies," he said.

When ASIC announced its increased focus on the private markets sector, one of its main concerns was the lack of oversight of financial reporting, disclosure and corporate governance, along with the sector's limited transparency.

This, he warns, could reduce "fair participation" and increase the risk of insider trading, given the multiple points of contact between registered entities, consultants and experts.

However, Green opined that given that private market participants are institutions, private equity firms, large super funds and wholesale investors, he is not convinced that current private market participants need increased oversight or protection.

"If you want to allow retail investors into the private markets, then you need to fundamentally review and then build a regulatory framework that meets retail investors and their very real needs for enhanced protection and oversight," he told InvestorDaily.

“It depends on whether the review concludes that it wants to expand private market participants to include retail investors. If the review recommends doing so, then significant structural changes will be required.

"However, if this is not the case, then the need for fundamental structural change is not apparent."

ASIC chairman Joe Longo previously argued that the move to private markets had reduced the number of "large, well-performing listed entities", significantly limiting the opportunities for many Australians and smaller investors to participate directly in their future success.

With about $55 billion wiped from Australia's listed markets last year, the chairman raised concerns about shrinking diversification opportunities in public markets and a growing concentration of larger institutional investors.