Australia’s Private Credit: Did ASIC tell us so?

There are obvious signs that the risks ASIC's private markets review warned of are materialising, precisely where the regulator predicted. And it is starting to feel like we are heading for an “I told you so” moment with ASIC. For disciplined sponsors with a clear strategy, this is both a validation and an opportunity.

Over the past 18 months, our Private Capital team has tracked ASIC's review of Australia's private credit market: from the initial discussion paper in February 2025, through industry submissions, the commissioned external report (REP 814) in September 2025, and culminating in ASIC's articulation of "private credit done well" principles in Report 823 in November 2025. You can review our commentary, musings and predictions on the review here.

The regulatory thesis was clear and, in our view, well-founded: rapid growth in Australia's private credit sector (estimated at approximately A$200 billion) had outpaced governance, valuation and disclosure practices in certain parts of the market, particularly among retail-facing funds with concentrated exposures to real estate construction and development finance.

If recent events are anything to go by, that thesis is no longer a hypothetical. The Australian real estate private credit sector is now showing us how the vulnerabilities ASIC’s review identified can crystallise, and how quickly market confidence can unravel when they do.

What ASIC told us to watch

ASIC's review identified several areas of concern directly relevant to what we are now seeing play out—and 3 of those areas perhaps resonate most loudly in current climes:

• Concentration risk and governance. REP 814 highlighted that some funds, particularly those targeting retail and wholesale investors under the sophisticated investor exemption, lacked governance guardrails common to international best practice: independent governance structures, robust concentration limits and clear conflicts management frameworks. Real estate-focused funds were called out specifically, with ASIC estimating they constitute approximately half of Australia's private credit market.
• Disclosure and transparency. ASIC noted wide variance in reporting practices, with many funds lacking detailed disclosure on arrears, provisioning, borrower concentration and payment-in-kind accruals. For the research houses and platforms that intermediate investor access, this opacity makes it difficult to assess true portfolio risk until it is too late to act.
• Valuation practices. Both REP 814 and Report 823 identified inconsistency in the frequency, independence and methodology of valuations as a systemic concern. For real estate lending, where asset values are inherently cyclical, the absence of rigorous independent valuation creates a compounding risk: loans can appear well-secured against optimistic or stale valuations until a liquidity event forces a reckoning.

What is playing out?

Recent events have demonstrated how these vulnerabilities can interact, and compound. The pattern is now familiar: a private credit fund with significant concentration to a single real estate borrower finds itself under pressure when that borrower's credit position deteriorates. The unravelling that follows usually moves faster than most participants anticipate:

• Concentration limits are tested, or breached. Where investment guidelines have been relaxed, or were never sufficiently robust, single-name exposures can quickly escalate to levels that represent an existential risk to the fund. Pre-sales forecasts that underwrote original loan valuations prove optimistic. Speculative development lending leaves lenders exposed to market conditions at completion, rather than contracted outcomes.
• Governance questions surface. Related party connections, conflicts of interest and changes to investment mandates attract scrutiny from investors, research houses and the regulator. The absence of genuinely independent governance makes it difficult for the fund to demonstrate that decisions were taken in investors' best interests.
• Valuation assumptions busted. Loans that appeared well-secured against projected end-values are re-examined. Where pre-sales are thin or construction has stalled, the gap between carrying value and realisable value can be significant.
• Disclosure gaps exposed. Investors discover, often through media reporting rather than fund communications, that the risk profile of their investment has changed materially.

This is not an isolated dynamic. The conditions for this pattern exist across parts of the retail-facing, real estate-weighted private credit sector: precisely the segment ASIC identified as the highest priority for supervisory attention.

The research house amplifier

One dynamic that has become increasingly apparent is the role of independent research houses as an accelerant of stress.

In Australia's retail and platform-distributed private credit market, research ratings function as a de facto gateway to capital. Many financial advisers and wealth management platforms rely on these ratings to determine which products are available to their clients. A positive rating opens distribution channels; a downgrade can effectively render a fund uninvestable.

This is particularly acute for private credit because, unlike real estate vehicles where capital is deployed into longer-duration assets, private credit loans (particularly those made to finance real estate assets and projects) typically have shorter dated maturities (some as short as 12 to 24 months of tenor). Funds must constantly source new loans to maintain their portfolios, making them highly dependent on ongoing inflows and therefore more vulnerable to disruption in distributions funded from assets.

When a research house downgrades a private credit fund, the consequences can cascade rapidly: the fund is likely to be removed from adviser platforms, cutting off new inflows; existing investors may trigger redemptions; redemption pressure can force asset realisations at a time of portfolio stress; and where the fund manager is listed, equity analysts may reprice the broader platform on the thesis that governance concerns in one vehicle could be symptomatic of the manager's wider product suite.

This contagion effect, where a problem in a single fund undermines confidence in an entire platform or indeed the broader sector, has the potential to create a self-reinforcing cycle. Heightened market attention increases scrutiny from research houses; downgrades trigger platform removal and redemptions; forced realisations at a discount risk confirming the very valuation concerns that prompted the scrutiny.

Compounding headwinds

These governance and valuation vulnerabilities are not crystallising in a vacuum. Several concurrent headwinds are compounding the pressure on real estate-focused private credit funds, and on the feasibility of the underlying projects they finance.

Tax reform. The Government's enacted reforms to negative gearing and the capital gains tax discount (effective 1 July 2027, subject to certain grandfathering provisions) have already reshaped the economics of residential property investment. While the restriction of negative gearing to new housing should, in principle, channel investor demand toward the new-build product that sits at the end of construction development pipelines, the replacement of the CGT discount with an inflation linked measure for investment properties is likely to dampen the attractiveness of residential property as an asset class. The net effect on pre-sales volumes and end-values for new developments remains uncertain, particularly during the transition period as the market digests the new settings. For private credit funds whose loan security relies on projected end-values and pre-sales achievement, that uncertainty is itself a risk factor that may not yet be fully reflected in current valuations or provisioning.

Construction sector stress. Cost inflation, labour shortages and  the ongoing uncertainty of the viability of the current model of risk allocation to builders (resulting in a number of high-profile insolvencies in recent years) have translated directly into delivery risk for private credit funds financing development projects. Where a borrower is unable to fund cost overruns or replace insolvent contractors, lenders are increasingly being called upon to fund completion costs directly, transforming what was underwritten as a passive lending exposure into an investment with returns linked to an active project management obligation and outcome (and, by definition, a changed risk profile).

Global headwinds. Globally, private credit markets have come under pressure as concerns about loan quality (including in sectors exposed to rapid technological disruption, such as Software as a Service) have prompted institutional investors to pull significant capital from major fund managers. This repricing of risk affects sentiment and allocation in the Australian market.

Superannuation and APRA. Alongside ASIC's conduct focus, APRA has been reviewing how superannuation trustees manage unlisted asset valuations and liquidity. For private credit strategies accessed by superannuation funds, this dual regulatory lens is increasing the due diligence and governance expectations placed on fund managers seeking institutional allocations.

Taken together, these factors mean the weaknesses ASIC identified are being stress-tested by market conditions, not merely by regulatory inquiry. The funds most exposed are those that combined governance shortcomings with concentrated exposure to the riskier segments of real estate development.

Discipline as a differentiator

It is important to note, as ASIC's own reports acknowledged, that this is not a story about the entire private credit sector.

REP 814 was explicit that "funds with large superannuation and institutional investment, and the best international private credit managers operating in Australia, generally demonstrate sound governance, and transparent valuation and fee practices." Report 823's reform agenda was deliberately proportionate: stronger conduct expectations directed at the segments where practices fall short, not a blanket re-regulation of well-functioning institutional capital.

For sponsors that have maintained international best practice (genuinely independent governance, robust concentration limits, quarterly independent valuations, full fee transparency (including borrower-paid fees), and detailed portfolio reporting) the current environment is not a crisis. It is a validation of the cost, discipline and sustained effort of maintaining those standards. Their governance withstands ongoing scrutiny; their valuations are defensible; their disclosure is sufficient for research houses and platforms to maintain confidence; and their investor base is less susceptible to platform-driven redemption cascades.

The bifurcation between this cohort and the tail of the market will, we expect, continue to widen as ASIC intensifies its surveillance and institutional allocators become more discriminating in their manager selection.

Opportunity in distress

For well-capitalised sponsors with the operational capability and risk appetite, stress in parts of the private credit market creates opportunity. When funds face redemption pressure, or when borrowers default and lenders take control of projects or assets, the underlying assets do not disappear. They transfer to new hands, often at a discount to intrinsic value. We are seeing opportunity emerge in:

• Loan book acquisitions: distressed sellers of loan positions create opportunities for acquirers with the capital and infrastructure to manage and work out those positions at a discount to face value.
• Project-level entry: stalled construction projects can be acquired or recapitalised by sponsors with the development expertise, contractor relationships and capital to advance them to completion.
• Platform and team acquisitions: where fund managers face existential pressure from redemptions or reputational damage, opportunities emerge to acquire operating platforms or distribution capabilities at attractive terms.

These are not risk-free opportunities. They require careful diligence on the integrity of underlying security positions, and the operational capability to manage complex workout situations. Tax structuring warrants early attention: thin capitalisation rules, the evolving ATO approach to private credit fund structures, and state-level duty implications all require proactive planning, particularly where acquisitions involve land-rich entities or cross-jurisdictional portfolios. On occasion, specialist assessment of the yield capacity and prospective exit from the underlying assets can benefit from assessment through a restructuring and insolvency lens.

For sponsors with this toolkit, the current environment is presenting a pipeline of opportunities that would not have been available 12 months ago, including some at significant discount to intrinsic value.

Looking ahead

ASIC's supervisory posture is intensifying, not retreating. Interim stop orders under the design and distribution obligations framework have already been issued. The FY2026-27 data collection pilot will increase regulatory visibility. Proposed legislative reforms, including wholesale fund notification, mandatory audited fund-level financials and potential extension of fiduciary duties to wholesale operators, will, if enacted, permanently raise the cost of operating below international standards. The broader regulatory and fiscal environment (APRA's prudential expectations, the new mandatory merger control regime, enacted tax reforms affecting residential property) is adding further complexity that only the best-resourced operators will navigate effectively.

Consistent with our earlier commentary, musings and predictions, we expect:

• further stress events concentrated in retail-facing, real estate-weighted private credit funds with governance and concentration vulnerabilities;
• continued tightening of research house and platform standards, accelerating the flight of capital to institutional-grade managers;
• growing strategic acquisition activity as stressed situations create pressure on incumbent sponsors to exit or find interim liquidity for their investors and consequently entry points for sponsors positioned to capitalise, noting that acquirers will need to navigate the new merger control regime and factor tax structuring into execution planning; and
• a progressive professionalisation and consolidation of the Australian private credit sector, ultimately positive for the market, its investors and the broader economy.

For our sponsor clients, the message is twofold: the discipline of maintaining international best practice continues to pay dividends, both defensively and in the trust premium it creates with institutional allocators. And for those with the appetite and capability, the dislocations now emerging represent genuine strategic opportunity.

Our Private Capital, Restructuring & Insolvency and Tax teams are monitoring these developments closely. Please feel free to contact any of the authors of this update if you would like to discuss.