Key Takeaways
- ASIC’s surveillance (Oct 2024–Aug 2025) reviewed 28 private credit funds and found uneven standards across disclosure, governance, valuation, liquidity and distribution.
- Inconsistent terminology and opaque disclosures hinder investors’ ability to assess true risk, performance and costs.
- Fee and margin transparency is a priority: ASIC highlights retained lending margins and layered costs that are rarely quantified or clearly explained to investors.
- Related-party arrangements and SPV structures need tighter oversight to manage conflicts and avoid obscuring total costs and incentives.
- Valuation discipline must be formalised: clear written policies, independent input where appropriate, timely impairment recognition and transparent methodologies.
- Liquidity management is a pressure point for open-ended funds investing in illiquid loans; distributions should be supported by genuine asset cashflows, not new subscriptions.
- Credit risk controls require consistency: default definitions, impairment criteria and portfolio monitoring should be aligned and clearly disclosed.
- Retail distribution must meet DDO requirements; ASIC also expects proportionate product governance and distribution controls in wholesale offerings reaching quasi-retail audiences.
- ASIC synthesises expectations into 10 “good practice” principles covering strategy, conflicts, valuation, liquidity, disclosure and distribution.
- Practical stance: managers should quantify all fees/margins, document conflicts and valuation policies, perform liquidity stress testing, and standardise default metrics; advisers should reassess product governance; investors and borrowers should demand clearer, quantified information before committing.
Introduction
ASIC has warned Australia’s rapidly growing private credit market of an impending crackdown. Released today, 5 November 2025, ASIC Report 820 (REP 820) sets out findings from surveillance of 28 retail and wholesale private credit funds conducted between October 2024 and August 2025. Those funds collectively managed approximately A$29.8 billion in assets (comprising about A$26.8 billion in retail funds and about A$3.0 billion in wholesale funds, per Table B of the report).
ASIC’s review found inconsistent disclosures and terminology; opaque fee and income structures and undisclosed net interest margins; weak governance and conflicts management; mixed valuation practices; liquidity mismatches and limited stress testing; and variable credit risk management and default recognition. ASIC has articulated 10 principles for “private credit done well” and indicated it will use regulatory and enforcement tools where it identifies misconduct, including the AFS licensee obligation to provide financial services efficiently, honestly and fairly, and prohibitions against misleading or deceptive conduct.
This article explains the findings in plain terms, clarifies the implications for fund managers, responsible entities, borrowers and investors, and sets out practical steps to align with ASIC’s expectations.
The size and scope of ASIC’s review
Between October 2024 and August 2025, ASIC reviewed 28 private credit funds spanning listed and unlisted vehicles, retail and wholesale strategies, and a range of sizes and complexities. Retail funds accounted for approximately A$26.8 billion in AUM and wholesale funds approximately A$3.0 billion, for a total of around A$29.8 billion. The surveillance included on‑site engagements and requests for detailed portfolio, governance, valuation, liquidity and distribution information.
ASIC situates this work in the context of a private credit market estimated at around A$200 billion, driven by superannuation fund allocations, moderation in bank lending to higher‑risk real estate, and increased retail participation through evergreen and exchange‑traded products.
What ASIC found: poorer practices that may harm investors and market integrity
ASIC observed that while some operators demonstrate strong practices that set a benchmark, a number of materially poorer practices risk harming investors and eroding confidence.
Disclosures and terminology were inconsistent, masking portfolio risks and undermining comparability. Few funds disclosed borrower interest rates or ranges, and there was limited transparency around net interest margins retained by managers. Governance and conflicts frameworks were often under-developed, including related‑party dealings via SPVs and fee capture outside disclosed management and performance fee structures. Valuation practices varied widely, with insufficient independence from investment decision‑making, infrequent re‑valuations, and occasional reliance on “as if complete” valuation bases for development finance without clear disclosure. Liquidity management lagged the risk profile of open‑ended structures investing in illiquid assets; notably, only two wholesale funds in the sample performed liquidity stress testing. Credit risk management frameworks and default definitions were inconsistent, complicating investors’ ability to assess performance and risk.
Some of these poorer practices are inconsistent with ASIC guidance and may contravene financial services laws, including the Australian financial services (AFS) licensee obligation to provide services efficiently, honestly and fairly, and prohibitions on misleading or deceptive conduct and false or misleading statements under the Corporations Act and ASIC Act. ASIC has already issued interim TMD stop orders in some cases and commenced enforcement investigations in instances of more egregious conduct.
Fees, margins and transparency: separate examples to illustrate the issues
ASIC’s core message is that investors need a clear, quantified picture of total manager remuneration across all channels, including management and performance fees, any net interest margin retained, and borrower‑paid fees (origination, line, restructure and default fees), whether captured directly by the fund operator or indirectly via related entities or SPVs.
Two distinct examples in REP 820 illustrate the concerns.
First, in a contrasting example under fee and income transparency, one wholesale fund passed through all economic benefits to investors, while another retained a substantial net interest margin of 7.5%, rather than passing the full economic benefit through to investors. Disclosure of such margins was often limited and rarely quantified.
Separately, in a detailed case study, ASIC reported a fund charging approximately 2.2% line/origination fees at each development stage and a 2.2% default fee, with some loans accruing penalty interest up to around 40% when in default. In that case study, investors’ distributions were substantially funded from interest capitalised to loan principal rather than cash flows from performing loans, and per‑loan interest margins typically ranged from 4–5% unless in default. The issue was the lack of clear, quantified disclosure of these fees, the retained margins and the true source of distributions.
To align with ASIC’s expectations, managers should disclose and quantify each remuneration stream, make plain any retained margins and borrower fees, and avoid complex structuring that obscures total costs and misaligns incentives.
Governance, conflicts and related‑party arrangements
ASIC identified inadequate documentation and oversight in many funds’ governance frameworks, including limited separation between investment approval and valuation/impairment oversight, minimal responsible entity (RE) or trustee challenge to managers, and weak conflict‑of‑interest controls where executives sat across decision‑making bodies and related‑party service providers or SPVs.
Where related‑party transactions exist, better practice involves independent oversight, robust documentation and disclosure to investors, clear allocation policies across overlapping funds and mandates, and independent committees for impairment decisions where management fees are NAV or GAV‑linked.
Valuation: methodology, independence and disclosure
Valuation discipline is central to fair entry/exit pricing and fee integrity. ASIC observed that many funds lacked effective separation between investment committees and those responsible for valuation and impairment, had incomplete or absent valuation policies, undertook infrequent valuations, or relied on “as if complete” valuations for construction loans without clear disclosure. The risk is understated leverage during construction and unit prices that do not reflect impairment in a timely fashion, especially in open‑ended funds.
Funds should implement clear, written valuation policies addressing methodology, frequency, governance and triggers for re‑valuation; ensure appropriate independence; and disclose the basis for any reported LVRs, including whether on an “as is” or “as if complete” basis.
Liquidity: managing structural mismatches and sustainable distributions
Many private credit funds are open‑ended but invest in illiquid assets, creating potential structural mismatches if redemption windows are frequent and liquidity management is weak. Only two wholesale funds in the sample performed liquidity stress testing, notwithstanding frequent redemption windows. Funds should clearly disclose redemption terms, any gates, and the results and frequency of liquidity stress testing, and ensure that distributions are predominantly funded by cash flows generated by underlying assets rather than investor capital or new subscriptions.
Credit risk management: defaults, impairments and portfolio monitoring
Default definitions were inconsistent, with headline default statistics ranging widely and often lacking comparability. Better practice involves documented credit assessment and monitoring frameworks, internal credit ratings with periodic review, early‑warning indicators, formal default management protocols and clear criteria for impairments that feed into valuation and unit pricing.
Marketing, distribution and DDO
For retail funds, design and distribution obligations (DDO) require REs to define an appropriate target market in the TMD and to take reasonable steps to ensure distribution is consistent with that TMD, including via platforms and advisers. ASIC observed unbalanced marketing, potentially misleading labelling, aggressive direct marketing tactics, and TMDs that characterised products as “low risk”, “core allocation” or “capital preservation” where that may not have been appropriate given the strategy and liquidity profile. Wholesale funds are not subject to TMD requirements; nonetheless, ASIC noted issues with wholesale client classification and distribution controls in some wholesale offerings.
Legal risk and disputes: what may lie ahead
As market conditions tighten, the structural weaknesses highlighted by ASIC may be tested. Disputes are likely to arise. Some funds may face significant stress or failure. Borrowers and investors may challenge enforcement actions or disclosures, depending on the facts. For example, borrowers may raise statutory unconscionability or misleading or deceptive conduct claims depending on the lender’s conduct and disclosures. In Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court confirmed that a lender’s system of conduct designed to avoid learning of a borrower’s financial situation can constitute unconscionable conduct. Whether such arguments succeed will turn on the particular facts, including due diligence undertaken, disclosure of fees and risks, and the sophistication of the borrower.
ASIC’s 10 principles for private credit done well
REP 820 consolidates ASIC’s expectations into 10 principles that should guide practices across private credit: stewardship; organisational capability; transparency; design and distribution; fees and costs; conflicts; governance; valuations; liquidity; and credit risk. ASIC’s roadmap indicates continued surveillance in 2026 with a focus on fees, margin structures and conflicts in wholesale funds, and the distribution of private credit products to retail clients.
Practical implications and next steps
For borrowers from private credit lenders, this is a moment to ensure that loan terms, security, fees and borrower‑side disclosures are clear, and that any forbearance, restructuring or enforcement is approached with independent advice. Where valuations and LVRs are cited, the basis should be transparent. If security enforcement is contemplated, consider whether the lender’s conduct and disclosures meet statutory standards.
For investors in private credit funds, demand full, quantified disclosure of all fee and income sources earned by the manager and related parties, including borrower‑paid fees and any net interest margin retained. Seek disclosure of the weighted average borrower interest rate and the range of rates, along with any retained margin. Ask for periodic reporting on the source of distributions split between cash income from investments and other sources (including capitalised interest or investor capital). Assess governance independence, valuation frequency and methodology, liquidity stress testing and consistency of default definitions.
For fund managers and responsible entities, benchmark policies and practices against ASIC’s 10 principles and the better‑practice guidance in REP 820 and REP 814. In particular, fully disclose and quantify all fees and income retained by the manager and related parties, including via SPVs; articulate valuation methodologies and governance with appropriate independence; implement and document liquidity stress testing commensurate with redemption terms; standardise credit risk management and impairment recognition; and strengthen conflict management and allocation policies across overlapping mandates.
For advisers and accountants, re-assess product governance, distribution controls, research reliance and suitability determinations for clients in light of REP 820. Ensure clients understand that many private credit structures are illiquid, may have complex or opaque remuneration arrangements, and require careful diligence on governance, valuation and liquidity.
What lies ahead for Australia’s private credit market
The sector has grown too quickly for standards to evolve uniformly. REP 820 is a landmark step that will shape how private credit is delivered in Australia. Those that move swiftly to align practices with ASIC’s principles, enhance transparency and governance, and strengthen valuation, liquidity and credit risk frameworks will be better positioned to navigate tightening conditions. Those that do not may face regulatory action, investor claims or loss of competitive position as the sector professionalises. While private credit has a crucial role in Australia’s financial system, ASIC has clearly articulated the need for it to be delivered in a way that is transparent, governed effectively, treats all stakeholders fairly and aligns risks and rewards.
Further Information
For further information about repayment-method clauses, joint-nomination requirements, drafting and enforcement of loan documents, staged mitigation strategies, and guarantor exposure in construction finance, please contact the author of this article
