Balancing transparency and growth: Regulating Australia's private capital market

With the publication of a new discussion paper at the end of February, the Australian Securities and Investments Commission (ASIC) has ignited renewed scrutiny into Australia’s capital markets and how best to regulate private capital investment offerings.  

While the discussion paper considers both the strengths and concerns of private capital, it has also raised questions regarding increased transparency surrounding private capital offerings here in Australia and the opportunities that change could bring when it comes to improving investor confidence.

ASIC seems to be taking a consultative approach when considering how to best achieve transparency, and while it’s no surprise that the suggested direction of travel seems to be moving private capital into a more regulated landscape, it’s important that a balanced approach be taken to ensure the economic benefits of private capital funding are not lost.  

Shifting dynamics in the private and public markets 

Private capital has continued to grow in recent years here in Australia and around the world, proving itself to be a critical economic funding mechanism. At the same time, ASIC has noted a decline in the number of listed entities in Australia and internationally as the more highly regulated public equity market has seemingly shrunk.  

While it’s unclear if this is just a cyclical change that could right itself, or is a more sustained trend, ASIC has expressed concern that the shifting dynamics between the two markets could significantly impact the economy, especially when considering regulators’ limited transparency on the private market today. 

While a growing private capital market is important for a strong economy, regulators are considering how to best disclose and manage risks including opacity, illiquidity, leverage, conflicts of interest, and valuation uncertainty. 

The role of regulators 

Regulators, such as ASIC, aim to protect investors and ensure they are fully aware of the risks associated with private capital, particularly, private credit.  

In their discussion paper, ASIC discusses the need for more transparent reporting of private capital markets and access to relevant reporting data to help assess the overall health of capital markets. They note that lack of transparency creates challenges for investors when making investment decisions, and that as regulators, it’s difficult to make judgements about system risks without being able to see the full picture. 

While it is vital to ensure there are protections in place, it is critical to strike a balance between safeguarding investors and maintaining the development of the private capital sector. Private capital operates differently from public capital markets, and the level of regulation should reflect these differences, ensuring that private capital can continue as an important source of funding without being burdened by the same regulatory constraints as public markets.  

This balanced approach will help protect investors, while preserving all the benefits that private capital brings to the economy as it grows and could even promote greater confidence when it comes to investment in private capital. 

Opportunities for private capital firms 

Private capital firms play a crucial role in the private capital market. As future regulatory changes are considered and discussed widely in the market, there are many opportunities for private capital firms, in an era of enhanced transparency. 

Enhanced regulatory controls could squeeze out potential rogue operators and create a more sophisticated private capital market, further enhancing the appeal of the investments and increasing confidence in investing in this space. This will ultimately benefit private capital firms by providing a stable and attractive investment environment. 

Looking forward 

Private capital plays an essential role in the economy, providing funding for various sectors and driving economic development. By enhancing transparency and confidence for investors through regulation, the private capital market will remain an attractive avenue for investment and will open new opportunities for private capital firms, benefitting the broader economy. 

A nuanced approach to regulation will ensure the differences between the public and private markets are considered, helping retain the benefits and sustained growth of the private market as it exists today. 

We look forward to continuing open dialogue between regulators and the broader market so we can continue to see a dynamic private capital market that contributes to a thriving and resilient economy. 

How BDO can help 

At BDO, our private capital experts are well-equipped to provide comprehensive guidance and support to private capital firms navigating the evolving regulatory landscape. With our deep industry knowledge and tailored solutions, we empower firms to seize new opportunities and achieve sustained growth. 

To learn more about how BDO can assist you, contact our private equity team today.