Negative impact feared from ASIC private markets scrutiny

The Australian Securities and Investments Commission (ASIC) risks creating increased uncertainty by pursuing a review of private market transactions, according to Primary Markets executive chair, Jamie Green.

Commenting on ASIC raising concerns about the opacity of private markets and including them on its list of priorities for the next 12 months, Green said the regulator’s attention could have far-reaching consequences over the next two years.

He warned that ASIC’s attention could create a negative ripple effect.

“Private markets, by their very nature, thrive on confidentiality and strategic control over transactions. When ASIC steps in to review private market transactions it can disrupt the trust and discretion that usually characterises these markets,” Green said.

He noted that private markets include private equity, venture capital and other forms of investment that do not involve publicly listed securities. The range of participants in the private markets has been steadily expanding in recent years to now include family offices, corporates, mainstream institutional investors and industry superannuation funds.

“While enhanced oversight is intended to protect investors and promote transparency and fair dealings, it can also lead to more conservative investment behaviour and a change in investor sentiment. Investors may become more cautious about engaging in private market deals, particularly in sectors or industries where regulatory intervention is more likely. This can lead to a slowdown in deal-making activity, affecting market liquidity and valuation,” Green said.

He said there might also be a ripple effect in public markets as an ASIC investigation of a high-profile transaction can cast a shadow over related public companies or sectors.

“For instance, if an organisation is under investigation for its handling of a particular deal, investors in publicly listed companies in which that organisation has a stake or which are in similar sectors, might reassess their exposure, resulting in share price volatility in those stocks.”

“While the intent is to ensure fairness and protect investors, the short-term impact of this review includes increased uncertainty, reduced market confidence and potential disruptions to deal-making activity,” Green said.

“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.”