The Conexus Fiduciary Investors Symposium was held in the Blue Mountains on 4 June. The following facilitated conversation followed Simone Constant's remarks.
Aleks Vickovich: Commissioner, I just wanted to get crystal clear on ASIC's position, and I appreciate that it's still being formulated to some extent after this very, very large consultation process. But with respect, there's maybe slight risk of mixed messaging. So on the one hand, we're sort of saying private is not shorthand for risky.
Simone Constant: Yep.
Aleks Vickovich: And that there are, in relation to private credit, some good for both sides of the equation. And then you're also saying it's likely ASIC will take steps to, for example, make it easier to stay listed for companies. Which could be read as a kind of implicit message that there are public policy benefits from being listed, right? And so I guess what we're trying to understand is clearly you've made it clear that there's a structural shift in the market, and that's significant in its own right. But is ASIC's view that that shift, the move towards privatisation, is a good or bad thing for markets? Are you concerned that the less transparent environment in privates is driving that trend?
Simone Constant: That is a big question. It's almost like an existential question for markets people like ourselves. I might start with the easiest path first, which was is that the transparency driving the move for privatisation? So no, that's not ASIC's - ASIC's view is not that super funds, for example, and asset managers are taking companies private or keeping them private. Primarily to avoid scrutiny, or the transparency associated with being listed.
The macro move toward the - and structural change of the rise of private markets and privatisation, and the entities that formerly have been listed now have been taken private or never been listed.
It's to do with when, and according to the feedback we've got, there are many factors. It's just as much to do with, for example, the amount of money in the world, and constantly being reminded about the volume of capital, post-GFC environment, as you all know, one of the things being volume of money under private management. Also about the ability for capital to move round the world, and of course in Australia that idiosyncratic factor of super. So there's macro features driving the rise of private markets.
As to the choice of whether to be listed or unlisted, certainly when there's no suggestion that, for example, when super funds choose to take a company private it's to get away from scrutiny. And super funds must do what's in the best financial interests of their members, and if the best risk/return outcome is to take an entity profit, then for investment to go to opportunity, then of course that's what they will do.
I would say super funds as a collective in the responses, and a thank you, I can see so many, super fund faces. We've been overwhelmed with the responses from individual firms as well as the industry group bodies. There is a sense of stewardship amongst the super funds for the importance, particularly in Australia, of having a listed market. So it's not just us that's saying there is a public utility in having a listed market. It's investors.
Yes, of course, it's investors who move in and around public markets. Of course, it's those who represent retail wanting access, but also the super funds, as you know better than I do, you need the liquidity. There will always be a material part of your portfolios that will need to be in Australia. You need a liquidity event for those private markets. You need the liquidity there for all the challenges you have in daily unit pricing and liquidity management. So for many reasons beyond participation, and at ASIC, we have a mandate. We're required to promote confident and informed participation in the financial system, which is actually a very cool mandate. Yeah, participation in a public market, but for big institutions, you have that ability, right? So there is that public utility.
Then when it comes to why companies are staying private, is it about avoiding scrutiny? No. The primary reason we keep being told from all corners, is growth. Growth and the state of today. First, there is the money and the sophistication just to be in private markets. Secondly, it's easier at the moment, it's easier to be in a growth space in a private market.
That's slightly worrying. That's slightly worrying. Maybe it's just reality, when ASIC -
Aleks Vickovich: But I mean, isn't it easier to grow [in private markets] because you've got that scrutiny [in public markets], and you have to build in continuous disclosure laws and the press, and you've got a bit more flexibility?
Simone Constant: It's an element. So it's less about wanting to avoid scrutiny, and certainly there is a view coming through that if you want to run a company that wants to be seen through medium and longer term growth, it's easier not being in there. And I've spent - my job before ASIC was a senior executive role in Australia's largest listed company. And I was in a role in the heart of financial pulling, looking after the risk across the Institutional Bank markets and Treasury, and the market risk and balance share risk associated. And that quarterly reporting, and making announcements, the public scrutiny of that, the intersection of course with the press.
And there are some elements of regulation and listing rules, and governance arrangements, that do, apparently, make it difficult. For example, the intersection with remuneration reports, it needs to be said that that's come forward from in the public environment, for example, and the AGM. So that scrutiny, it's more about that constant, constantly reporting in the short term and in the Australian market, seen as not being best necessarily for supporting growth. So that's not uniform, but it's something that we've listened to.
What can we do about that? You're right in thinking there's not so much ASIC can do there about that. There are some things. We can make it easier, as I said, streamlined. So to make that less of a Rubicon to cross, potentially, and something that's more in contemplation.
As for the staying listed, that is harder, you're right, that is harder, and some of the government's challenges associated with the staying instead of getting that sort of longer term or medium to longer term view on the horizon is going to take - will take a lot of moving parts to come together in a maturity.
But we think, we do think that there's a recognition in the submissions we've got, including from large institutional investors, that this is something that the Australian financial system, those of us who are lucky enough to play a position where you get to see the scale, we have to bite into and think about it. Because whilst this might be a global phenomenon and private markets are going to grow, and perhaps there are structural elements of declining global listed markets, and perhaps there are, the utility of that public market cannot be underestimated if we want a thriving Australian financial system.
Aleks Vickovich: Thank you. And let's, as you said, your body of work here is much broader than institutional investment. It looks right across the spectrum about capital markets. And I just wanted to put to you specifically the risk that is either exposed to, or caused by the idiosyncratic sort of super element as you're framing it.
So there is a view in market - I'm not sure if this came up in the submissions, I wouldn't be surprised if it didn't - but there is a view privately held by some institutional investors that this work ASIC is doing on private markets is prudent. It's fair enough. The timing is right. But that really what you're concerned about is kind of downstream. That it's wholesale. It's retail. It's dodgy managers that no one's heard of in the outer, in the outskirts of capital cities, that it's not really institution grade investments working with world class managers. So can you help clarify that? Specifically on institutional investment, is there a complacency there? Are they equally exposed? Are they more exposed? How do you think about those different categories?
Simone Constant: So whatever work ASIC does, we will almost always receive a response. Institutions in Australia are big and mature. Us as ASIC, we can look after ourselves. Whether it's pre-hedging, which is something, and the piece of work I've been involved in that you're probably not as close to, being the debt markets, or whether it's public-private markets, and are the settings right.
And, absolutely, I think it would be difficult to have been more positive as an ASIC Commissioner about maturity and respect to Australian markets than in my opening remarks. So for sure, this a financial system that you should be proud of with sophisticated institutions.
That said, those sophisticated institutions are managing other people's money. Like it's still other people's money. And I don't say that in a flippant way. You know that, right? You know that.
You know that, and you understand those responsibilities more deeply than I do, perhaps. But we can't forget that. And when so much of the money in superannuation is compulsory, there is that responsibility, that awareness. And as ASIC, we have to make sure therefore that those responsibilities are being met, just as we look at the responsibilities and obligations being met for those that service retail.
What that looks like in a practical sense, and there's a lot of agency that you take on, even in very large financial institutions and in that responsibility, we have to make sure that that agency, that responsibility is being met. What that looks like in practice is that where we might focus our activity, the outcomes of this work might be different. At the macro level, we all have an interest in thriving public and product markets and what's driving those things, and whether there's behaviours that we should be looking into more closely, into driving, perhaps declining public market and rising private. As I said, there's that reminder of that responsibility, and making sure those responsibilities are being met. Because it is someone's money, at the end of the day, that we're looking after.
And then other activity, on one hand, in private credit being distributed to retail, we might be looking more closely and more quickly at things like - and it even came up in the previous discussion, and maybe we'll turn to private credit more closely - but we might be looking more closely and more quickly at things like that effective disclosure and those practices.
On the other hand, it might be with institutional in the institutional side. Of course, as you become these large institutions that you can look after yourselves, there's a lot of scale and there's a lot of touch points. So if institutional money in super and funds management in Australia is the dominant factor, then, well, how are you meeting the responsibilities for integrity of the market? How are you meeting the responsibilities to keep information private and sensitive that needs to be treated as such? How do you think about public touch point view, private touch points there in your own organisation?
So there's some serious responsibilities that go to having that significance of impact. And then over and above that of course, APRA has lead when it comes to things like valuations in investment governance. We of course at ASIC are refreshing our review and our close attention to the reporting that goes around that, public disclosures that support that. What does transparency look like that sits in and around those practices that APRA's been doing so much close work on?
Aleks Vickovich: So we want to come back to private credit as you say. And the work you're doing with more broadly in the unlisted asset space. Just briefly on the work you're doing on the super itself, and you talk about the idiosyncrasy of super in our system. Certainly, it's globally rare, it's somewhat of an anomaly, certainly the size to population ratio. But the work you're doing on, for example, member experience, death benefit claims has been front of mind, a whole raft of enforcement activity. You've been very busy, supposedly to line up with a strategy is not necessarily the mantra, and yet there's enforceable undertakings, and a number of court actions.
So take us through, I guess, what you would want investment teams to know about that. Many of the people in the room are senior members of APRA-regulated super funds, but not all. But does that also colour the way that you're viewing super's role in the capital market? So insofar as, if all of those governance and risk management and member experience pieces were in really good hygiene, would that change the way that you were then viewing the role of super? Does it undermine the confidence that you have?
Simone Constant: Gosh, there's always so much in your questions.
Aleks Vickovich: I'm not known for small talk.
Simone Constant: No, no, fair point, they're great and they're meaty. So where I would start at is superannuation is an absolute privilege to manage and it's a privilege to regulate it as well. As you know, as I just expressed about superannuation, what an incredible system we have, right? What an honour we have to be part of it. And that does not narrow whether you're in member services or whether you're in investments. And I imagine you all know that, and I hear morale is good up the back as well. So I imagine you all know that and think about that every day. But you must think about it every day, that responsibility to the member.
The message is that - I really like that population statistic. Goodness, talk about punching above our weight. We have a funds - but it does mean we have a funds management industry that's just like extraordinary, compared to the size of its population. So we must be - and if you think about that, and it will soon be second largest in the world versus the 55th biggest population, or 12th or 13th biggest economy. Come on, we owe it to ourselves, right? We owe it to ourselves to be not just good in class; like best in class. We owe it to ourselves, and we should be proud of it.
The message should be exactly the same whatever part of superannuation fund you work in, and I've worked in and around super funds most of my career, either in advising them or with them. And whether you are in the investment team or whether you are in the member services team, or whether you're taking those calls to somebody who's grieving and wanting their death benefits paid for their loved one, your responsibility is to your member, your responsibility is to a member.
And I don't ever resile from that message. Whether it's talking to people in investment who, yes, you are brilliant, you're intelligent, you do amazing things, but same responsibility. Whether I'm talking to someone in a call centre, or whether I'm talking to a member of your trustee board. Your responsibility is through to your end member in the way you go about things. And every bit of data or every provider in the same way that we say to trustee boards, and I say to trustee boards, it does not matter if you're in-sourced or out-sourced, or how you arrange yourselves, your responsibility is to make sure that it's doing the best it can for your vested interest to your member.
As an administrator we would say that, on the services side. We would also say that about your fund managers. And I know many of you do this and it's a pretty mature industry but are the fees right? Are the incentives right? Are the disclosures you're getting right? Are you able to meet those responsibilities, the agency you take on through to that end member.
Aleks Vickovich: No, it's good, there's some clear messaging there for the investment teams. Because you're right, it can be, in the complicated system that we have, it can be easier for large organisations to say, well, we've got risk people to deal with that, or we've got a trustee board whose job is to deal with that, right?
Simone Constant: Yes, and I think - but I have yet to meet someone from a super fund that I don't think understands that, but that same responsibility for the member, because it is their money, and they trust you with it, and they trust you with it to support their retirement, being the purpose of the system.
And I think you've remarked if there's confidence in the investment side, does that help the confidence? Absolutely. Like, absolutely. A hundred times over I would say that. And my remarks were deliberate about the maturity in investment and investment governance, and asset management when it comes to superannuation. And it's unsurprising, because this has been a system of course in accumulation. The system is being challenged now. It's become very large, it's globally significant, not just significant for every Australian. And the service draw is mounting, because people are thinking about retirement, or they're in retirement, or sadly passing away, and leaving retirement savings. So it's getting more complex, it's getting more difficult.
But the functions that have been maturing for some time, like the investment side, the asset management side, and through good work of APRA as the lead regulator there, there's a soundness and a confidence. And the final thing I'd say is it really - I cannot emphasise enough how pleasing it was that the super funds themselves responded to our discussion paper, and some of them offered hours of time to talk through how they think about things. And there is so much alignment on some of this, when it comes to, for example, the funds management industry and servicing Australia, supporting Australia, whether it's global or domestic, in the best way possible for a thriving financial system, and for best outcomes for end investors. There's serious alignment there, because it's your system and our system, and the investor system.
