Private credit funding review ‘an opportunity’ to restore trust in Australia’s debt market

While a recent review by the Australian Securities and Investments Commission (ASIC) identified compliance gaps, ultimately, these findings are an opportunity for well-run operators to boost trust in the market. Financers should ensure that maintaining trust and meeting regulatory scrutiny is a top priority.

Private credit refers to non-bank lending, typically through private credit funds that raise capital from investors seeking higher yields and lend directly to businesses. These specialist lenders and fund managers provide tailored financing solutions to businesses that may not meet traditional bank criteria or require more flexible terms. They often step in where banks cannot, supporting sectors such as mid-market corporates, infrastructure, renewable energy projects and property development.

By offering bespoke structures, faster execution and access to capital for under-served borrowers, private credit plays a critical role in bridging funding gaps and, done well, can support economic growth and investor returns, while mitigating any such risks.

This flexibility enables borrowers to fund complex or innovative projects, while offering investors an alternative asset class. Australia’s private credit market has surged to an estimated A$200 billion (approx. US$130 million) in assets under management, driven by superannuation inflows, reduced bank lending to higher-risk real estate and growing retail investor participation through evergreen and exchange-traded products.

On 5 November, ASIC released a report (49-page / 1.07MB PDF) summarising its year-long surveillance of 28 retail and wholesale private credit funds. Its investigation found disclosure gaps, opaque reporting of fees and portfolio composition, weak governance frameworks, insufficient oversight of related-party arrangements, lack of independent valuations and inadequate liquidity stress testing.

ASIC also noted inconsistent credit risk management practices, including unclear default definitions and impairment criteria. Earlier this year, ASIC issued stop orders on certain retail products and signalled that enforcement will escalate if standards do not improve. 
Rather than viewing ASIC’s scrutiny as a threat, the industry should see it as an opportunity. When private credit operators act responsibly and ethically, which many do, the source of funding can be essential for growing businesses. Stronger disclosure and governance will attract long-term capital and institutional investors, while boosting trust in the sector.

For investors and advisers, the focus should be on reviewing current risk exposures, advocating for transparency on fees and valuation methodologies, while staying informed on ASIC’s guidance and enforcement actions. 

For fund managers, the priorities are implementing fair, timely and transparent valuations, liquidity stress testing, disclosing all fees and income streams clearly, strengthening governance and conflict management frameworks and ensuring design and distribution practices are fair, transparent and appropriately targeted for investors.

Equally important is robust documentation of loan agreements, security arrangements and any waivers or standstill agreements, ensuring these are consistent with the disclosures made to investors about documentation standards and approach. This alignment between practice and disclosure is critical to maintaining trust and meeting regulatory expectations.

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