The present corporate legislation must be reformed to improve transparency and fairness in the capital raising system, a leading financial research firm has said.

ISS Governance Services, formerly RiskMetrics Australia, yesterday released a report that reveals about 50 percent of the the $98.9 in capital raising conducted by Australia's top 200 companies in 2008 and last year was via private placement deals to selected investors.

It said by handpickicking investors, firms are effectively depriving general shareholders the opportunity to acquire shares at a discount, on average 12.3 per cent below the prevailing market price.

The study shows 45 per cent of the total capital raised was was allocated to institutional and sophisticated investors through 140 share placements arranged by company management or their investment bank advisors. The average rate of return for the placements over six months was 20 per cent.

About $46 billion of all funds raised in the period were rights issues open to all company shareholders.

ISS has asked for a series of improvements geared toward making it more attractive for firms to raise capital through a general offer to all shareholders.

The research company has called for the scrapping of prospectuses for retail investors, given the protections afforded by the country's continuous disclosure regime, and exacting disclosure of placement recipients whose stake has grown as a result of a placement.

"The two years to 31 December 2009 proved very lucrative for investment banks as they reaped fees of $1.89 billion for advice and underwriting," ISS said in its summary.

"This is more than triple the total disclosed remuneration of S&P/ASX 200 chief executive officers in 2009.

"Fees paid to investment banks during this period appeared very high relative to the actual exposure of the underwriters.

"Over the two year period underwriters were required to subscribe for $1.89 billion in securities, which represented 2.8 per cent of all underwritten issues."

ISS said revealing security allocations in private placements would maintain the flexibility of the country's capital raising regime and allow market participants greater confidence through observing how boards use this flexibility.