ASIC’s review of Australia’s public and private markets: Private credit first off the rank

As predicted in our note last week, the next instalment on ASIC’s review of private markets has now dropped. It is focused on the private credit funds sector and is a commissioned external report (REP 814) prepared by two Australian finance professionals, Nigel Williams and Richard Timbs.

Some in the media circles have described the report as “damning” of the private credit sector in Australia. Our take however is that it provides a much more nuanced and informed assessment of the industry’s current practices, highlighting both strengths and areas requiring improvement.

This update summarises our key takeaways from the report.^[1]

What the report does, and doesn’t do

The report outlines foundational insights on the size and nature of the private credit sector, including examples of better and poorer practices and areas for industry and regulator attention. The report provides a better sizing of the Australian private credit market (estimated to be in the region of A$200 billion) and acknowledges that from a borrower perspective, the private credit market is serving its purpose. Borrowers are obtaining access to debt capital where otherwise they may not have, supported by the market growth. The report recognises upfront that:

“Private credit, done well, has a valuable role to play in the Australian economy. It can make an important contribution to economic growth. Private credit complements other sources of debt financing for businesses, including banks and public markets. Its development has largely occurred since the global financial crisis (GFC) – when prudential regulators increased bank capital requirements on higher-risk, leveraged corporate lending, as well as real estate construction and development financing – and its growth has partly been supported by the growth in superannuation savings.”

The report is not ASIC’s formal policy response. That said, we expect it will heavily influence ASIC’s regulatory approach.

The report does not address the performance of the investment adviser market, despite its relevance to retail investor access and outcomes. We expect that ASIC will likely address this aspect in its formal response.

Key findings

For international private credit participants and those who attract their funding from large institutions (including Australian superannuation funds), the findings in the report are not all bad news – quite the contrary in fact, with the report finding 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”.

For financial sponsors in this cohort, it is likely that their operating practices and procedures already adhere to what the report identifies as good practice through:

clear definitions of key terms;
full fee disclosure (including borrower-paid fees);
independent governance structures;
quarterly independent valuations; and
otherwise transparent portfolio reporting (e.g. arrears, PIK loans, distribution sources).

Consistent with the prediction of many (including us), the report calls out for specific attention, and room for improvement relative to international standards of practice, sponsors and funds in the market targeting retail investor and wholesale investors using the ‘sophisticated investor’ exemption. Real estate focussed funds are highlighted for specific scrutiny as ASIC estimates they constitute approximately half of our private credit market (including the riskier end of the spectrum covering construction and development finance).

The zones of concern

The practices identified in the report as needing improvement relative to international standards of practice can be broadly distilled into 2 categories:

operational; and
investor protections.

Operational

The report identifies 4 key areas of operation that require improvement:

Conflicts of interest – specifically across fee incentives (less than full pass-through of borrower-paid fees e.g. upfronts and default-related fees), net interest margin capture, related party transactions and independence, and multiple capital stack exposures;
Fees and remuneration – in particular, inadequate disclosure, inconsistency with international practice, and misalignment with investor outcomes;
Portfolio transparency and valuation – where the frequency, independence and methodology of valuation are not necessarily consistent with international practice, lack of standardised practices around portfolio distributions and reporting, and provisioning;
Terminology – where key terms are often inconsistently defined within the Australian market.

Investor protections

Albeit with a degree of overlap with the Operational, the report also identifies 3 key areas of concern relating to investor protections:

Sophisticated Investor exemption – retail and wholesale investors face less transparency and higher risk exposure, particularly in real estate development funds;
Terminology – key terms such as “investment grade” and “senior debt” are often inconsistently defined, leading to confusion (including amongst investors to whom the sophisticated investor exemption applies);
Disclosure – wide variation in reporting practices with many funds lack detailed portfolio reporting.

Where to next

ASIC is anticipated to release further findings from its private credit surveillance, including additional expert reports and formal responses, in November 2025. This will likely include guidance principles for private credit participants and a roadmap for future industry standards and surveillance.

As the report acknowledges, global / international / institutional / larger private credit managers who are already regulated in other market are, as a general statement, considered to be achieving high standards of reporting and operational practices (due to their investor base). We hope this means that they will not be saddled with additional local reporting and other regulatory burdens here.

We expect the areas of further regulatory focus and oversight to be centred around the smaller less-well-resourced funds which are more retail focussed and/or are lending into the riskier end of the real estate sector.

ASIC already has the power

The report notes that ASIC already has the regulatory powers to allow it to achieve many of the identified disclosure and compliance improvements – a point we stressed in our formal submission earlier this year. The powers take a variety of different forms including AFS licence conditions, Corporations Act disclosure and conduct provisions, design and distribution obligation stop orders and published regulatory guidance notes. We see this as an important acknowledgement - ASIC is not dependent on the passing of new laws to address much of what has been identified. We have recently seen ASIC issue some well publicised stop orders in the private credit sector suggesting that its posture may already be stiffening.