Australia regulatory proposals to benefit private equity

Recent recommendations have urged a renewed focus on net returns, rather than fees

Private equity firms are likely to benefit from changes in Australia’s regulatory framework that increase the focus on net returns for pension funds in the country, a move that has been taken on board in the latest set of recommendations in the Financial System Inquiry’s final report released today.

Specifically, the report outlines a new framework to facilitate a “more efficient allocation of retirement savings” to provide higher and more consistent income in retirement, a move that would reduce pension and superannuation funds’ focus on high fees, one of the central arguments against investing in private equity.

“The core issues we put to the inquiry over the course of the last 12 months have been framed around the need to address existing roadblocks which impede the effective development of private capital into Australian businesses across our economy,” Yasser El-Ansary, chief executive of the Australian Venture Capital and Private Equity Association (AVCAL), said.

“We are encouraged by the Inquiry’s recognition for a more efficient and competitive retirement investment framework, which is underpinned by a focus on net investment returns for fund members.”

Investor concerns have impacted Australia’s private equity industry, as many private equity supporters historically have had to back-out of the asset class as regulatory constraints tightened in areas such as liquidity, transparency and fees.

However, Tony Abbott’s government appears to be working with the industry on a number of key policy areas, including the call for more transparency in superannuation funds’ investment portfolios, which could be potentially damaging for private equity funds. 

In May, the government deferred the implementation of new transparency laws for a period of 12 months, Private Equity International reported earlier.

The new rules, which would require superannuation funds to disclose every investment held, along with the relative market valuation of that investment every six months, were set to come into effect on 1 July 2014, but had strong objections from a number of superannuation funds, as well as the industry association AVCAL. 

Moreover, the latest recommendations have suggested introducing a legislative mechanism to examine whether policy proposals are consistent with those of the superannuation system, the formation of a permanent public-private sector Innovation Collaboration Committee, as well as reforms to remove obstacles to financing for small- and medium-sized enterprises, including a framework to facilitate equity crowdfunding.

El-Ansary explained, “Australia needs to find a more efficient way to unlock access to capital to support a much greater level of private equity investment than is currently the case. At least 30,000 businesses are missing out on private equity investment right now.”