Global | Publication | June 2025
In July 2024, the Australian Securities and Investments Commission (ASIC) released the report Equity market cleanliness snapshot report (REP 786) and a Review of Australian equity market cleanliness: 1 November 2018 to 30 April 2024 (REP 787) as part of a long-term focus on the changing relationship between public and private markets.
This was recently followed up in February 2025 as ASIC released a discussion paper on Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets (Discussion Paper) as well as the report Evaluating the state of the Australian public equity market: Evidence from data and academic literature (REP 807). The Discussion Paper offers a preliminary view on the reasons behind the decline of public markets in Australia and globally, and the risks and opportunities associated with emerging private markets. It also outlines the ways in which regulators might respond to better position Australia’s financial system.
ASIC has sought stakeholder views on these areas to inform their priorities and future plans.
Since 2022, Australian public equity markets have experienced a decline in IPOs and net companies being listed, alongside a longer-term decline in the ASX market capitalization relative to global market capitalization and Gross Domestic Product. The data so far suggests this is a cyclical change, not a structural change, as there have not been any recent significant changes to the regulation of public markets. However, this has coincided with growth in private markets, particularly in respect of private capital funds. Although private markets are still much smaller than public markets in Australia, a further decline in public markets could compromise the integrity and transparency of price discovery, liquidity and valuation that public markets offer.
The Discussion Paper notes that mature markets such as the United States, the United Kingdom and France have experienced clearer structural declines in the number of public companies being listed, while global private capital fund assets under management have grown threefold in 10 years. Although the nature of these declines differs from Australia, ASIC is still exercising caution as it monitors the domestic situation.
One of the most likely reasons for the decline in public markets is the deregulation and consequent growth in private markets. Deregulation makes capital easier to access for companies without resorting to public markets, which is attractive to founders who do not want to relinquish control to shareholders.
For investors, private markets seem to provide better returns, but these results do not seem to take into account the possibility of additional risk, leverage or illiquidity.1
Private capital markets present new challenges for which Australian regulators must be prepared. ASIC lists the key risks of investing in private capital funds as opacity and unfair treatment of investors, management of conflicts of interests, valuation of illiquid assets, vulnerabilities from leverage and investment illiquidity.2 Historically, these risks have not attracted as much regulation as public markets because they have only been offered to (sophisticated) wholesale investors. However, retail investors are increasingly directly and indirectly exposed to private capital markets, indicating that the prevailing regulatory approach may need to change.
Some private capital funds have reduced their investment thresholds, enabling retail investors to invest directly.3 However, even when retail investors do not seek out private capital markets themselves, they may be members of superannuation funds that hold private market assets, meaning they hold that investment exposure indirectly.
Members make contributions to superannuation funds with the expectation that their contributions will be invested, grow, and be returned for retirement purposes. This system in Australia is worth more than $4 trillion, with Australian Prudential Regulation Authority-regulated superannuation funds worth $2.8 trillion.4 As such, superannuation plays a significant role in Australian and global economies. Superannuation funds are increasingly investing in private capital markets to diversify their investments,5 which is exposing retail investors to the risks described above.
Informed by the actions and plans of foreign regulators, ASIC is seeking to sustain healthy public equity markets to ensure that Australia’s markets remain attractive to domestic and foreign investors, by taking steps such as examining whether the ASX IPO listing pathway and rules can be streamlined.
In order to be able to support, supervise and maintain the market integrity of private markets in Australia, ASIC recommends a legislative framework for the recurrent collection of data on managed investment schemes.6 Current data sources on private markets have significant limitations, which could potentially result in market stress or failure with significant repercussions for retail investors.
However, these are preliminary ideas, and ASIC has encouraged stakeholders to suggest other ideas.
ASIC sought responses in relation to the issues raised in the Discussion Paper, particularly regarding:
The deadline for responding to the Discussion Paper was April 28, 2025 and ASIC is expected to release an update later this year that will outline key feedback and how it will use such feedback to inform its priorities and future work program.
A key issue in the Discussion Paper is transparency, with ASIC concerned that the shift in balance between public and private markets reduces its ability to assess the overall health of Australia’s capital markets from a system perspective. Much of the private market activity in Australia is intermediated by private capital funds and ASIC acknowledges that regulatory reporting obligations in this area lag behind regulatory best practices seen in other jurisdictions like the US and UK. With this in mind we expect to see suggested reforms in this area. However, what exact form these reforms will take remains to be seen, including whether ASIC will simply copy across UK or US requirements which may benefit those already operating in these jurisdictions.
Staying with global themes, as mentioned in the Discussion Paper, increasing retail participation in private capital markets is not something that is confined to Australia and is a trend that can be seen in other markets like the UK and the US. In the UK there has been significant growth with private capital markets assets under management almost trebling in the decade to 2023, but even this has not been on the same scale as in the US. In both jurisdictions there are certain themes that have emerged given direct retail participation in private markets, including disclosure reform which ASIC will no doubt be monitoring closely.
For the boards of firms operating in Australia’s capital markets there are certain steps that they may wish to consider in light of the Discussion Paper. Such steps include:
Publication
Following a relatively promising start to the year for mergers and acquisitions (M&A) activity, the US tariff announcements shook dealmaker confidence, triggering global trade uncertainty and stalling M&A deals across the global M&A landscape.
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