Private Market managers must lift governance game – whitepaper

Faced with increased regulatory scrutiny private market managers will need to lift their game with respect to operating and governance models, according to a new white paper from specialist investment consultancy, Mavin Advisory Group.

The white paper suggests that while Australia is in a “golden age” for Private Markets investing, critical challenges persist including “a notable shortfall in strategic internal investment by private market managers”.

In referencing the existence of a “golden age” the white paper cites the impressive private market growth over the past decade with overall assets under management (AUM) of private capital funds in Australia having increased by 160%.

Further it said that as the largest investor base in the Australian market, superannuation funds’ investments in private markets now represent over 16% of their total portfolio, with some funds holding a substantially higher portion of their total holdings.

It noted that investments in unlisted real estate and infrastructure comprise the largest component, followed by private equity investment.

“While private debt has the smallest allocations, it is the fastest growing component of private market investments from super, albeit from a low base,” the Mavin white paper said.

The white paper states that “notwithstanding the impressive growth in private markets in recent years, a critical observation is that their operations and technology functions remain immature”.

“In fact, there’s a notable shortfall in leveraging this Private Markets era to invest in their own internal capabilities, outside of investments and business development, and secure their long-term sustainability,” it said.

The white paper said experience from public market managers should not be ignored as they can signpost a more operationally challenging and less profitable future for private markets.

Mavin Advisory Group partner, Philip Hope reinforced that despite the strong growth in private market investment, the firms had underinvested n their operations, technology and governance capabilities.

“The increase in demand for private market investments has been significant, with investors intending to further expand their allocations to private markets. Within this context, it is unsurprising that the regulators have increased their levels of scrutiny into private markets, in particular the newest market entrant, private credit.

“While in theory, similar levels of transparency between private and public markets seems fair, in practice, this is not as straightforward as it sounds. Disclosing this level of detail may in fact detract from the distinctiveness of individual private market firms and the deals that they are able to originate,” Hope said.