On 18 June 2026, ASIC put Australia’s private credit sector on notice. It wants 30 June asset valuations that are current, accurate and built on realistic assumptions. This piece is written for the head of credit, the head of workouts and the head of legal at a fund manager, responsible entity or trustee. It sets out what the notice asks, why valuation sits at the centre of it, what the reporting cycle is likely to expose, and where the disputes and restructuring exposure lies.
What ASIC said, in plain terms
ASIC’s message is short. Use the 30 June reporting cycle to challenge your assumptions, refresh your valuations, and lift your practices in line with its ten principles. Do not wait for a formal default before you reassess asset values and the risks attached to them.
The regulator is not speaking from theory. Its private credit work has run for more than a year. A voluntary survey ran from 26 March to 14 May 2026. Twenty-two managers responded, covering fifty-two funds and around $76 billion in assets under management. ASIC says this is a snapshot of the local market, not the whole of it, and notes that some of the recent redemption pressure has come from funds outside the survey sample.
The work shows credit deteriorating unevenly, with pockets of higher defaults, impairments and loan amendments. Redemption requests are contained in total, but heavier in some feeder funds that invest in offshore private credit managers. Most funds are still managing liquidity, though the buffers are thinning. Growth in the number of funds has slowed. Management of concentration risk is, in ASIC’s word, variable.
Three findings sit behind the valuation message, and they matter more than the headline. First, valuations are lagging economic reality. Weaker borrower conditions raise the risk that a reported value no longer reflects what an asset is worth. Second, some portfolios carry heavy exposure to a single developer group or related assets, and the management of that risk is not mature. Third, the words funds use are inconsistent. Default, arrears, impairment, investment grade and secured are defined differently from one fund to the next. That makes comparison hard, and it makes a single fund’s trend easy to flatter.
ASIC has backed the message with action. Poor practice in private credit is a 2026 enforcement priority. Surveillances across retail and wholesale funds are well progressed. Reviews of financial reports and audit files are underway. Multiple enforcement investigations are running. In 2025 ASIC issued stop orders against the TruePillars Investment Trust (25-240MR), RELI Capital Mortgage (25-208MR) and the La Trobe Australian Credit Fund (25-206MR). The notice also draws a line every operator should read twice: these obligations cannot be outsourced. Accountability runs the length of the value chain, from origination to audit.
The ten principles are a benchmark, not new law. Principles 3 to 10 map to the eight problems ASIC found. The first two, on stewardship and capability, restate what the law already expects of a fund manager. We come to the law below.
Why valuation is the pressure point
A private credit loan has no screen price. It does not trade on a market. So a fund cannot mark it to market. It marks it to a model. That is the whole of the problem in one line.
A mark to model rests on judgement. The inputs are the chance the borrower defaults, the loss if it does, the value of the security behind the loan, and the rate used to discount the future cash flows. For a performing loan, many funds hold the loan at or near par, or at amortised cost, and adjust for expected losses. The judgement is in the adjustment. Move the assumptions a little, and the value moves a lot.
The three things that make a mark look better than it is
Capitalised interest
Many private credit loans let the borrower add interest to the loan balance rather than pay it in cash. The loan looks current. No payment has been missed. But no cash has come in either. If a borrower can only pay you by borrowing more from you, the loan is not as healthy as the mark suggests. ASIC named capitalised interest for a reason.
Loan amendments
When a borrower cannot meet its terms, the common response is to amend the loan. Extend the maturity. Waive a covenant. Roll up the interest. An amendment avoids a recorded default. It does not cure the credit. The question for the valuer is simple, and often dodged: if you had to amend the loan to avoid a default, should the loan still sit at par?
Stale collateral values
A development loan is only as good as the project behind it. Cost escalation, delays, soft presales, unsold stock and a harder refinancing market all bear on the end value of the security. If the valuation still runs on last year’s feasibility, the mark is stale. ASIC pointed straight at property development for this reason.
Add concentration to those three. Where a fund has lent heavily to one developer group, the loans are not independent. If the sponsor fails, several loans fail together. A model that values each loan on its own will understate the risk.
From a soft mark to a run: what the cycle will expose
The reason valuation matters is not academic. It drives a chain of consequences, and the chain is short.
Net asset value sets the unit price. Investors buy in and redeem out at that price. If the net asset value is too high, an investor who redeems takes out more than its fair share. The investors who stay, and any who join, are diluted. That is not only unfair. It is a breach of the duty to treat members of the same class equally. It also creates a first-mover advantage. The first to spot a soft mark and redeem wins; the rest carry the loss. That is how a run starts.
An overstated value also lifts reported performance. Management fees are charged on assets under management. Performance fees are charged on returns. A higher mark means a higher fee. So the manager has an interest in the number. ASIC said this in terms: current conditions raise conflict risk in valuation, in margin allocation and in impairment decisions, where incentives are not aligned.
The audit backstop is weaker than many assume. ASIC’s review of superannuation fund financial reports and audit files (REP 816) found that auditors did not always get enough evidence to support unlisted asset values, did not consistently challenge a manager’s own valuations, and applied high materiality thresholds that cut the amount of audit work done. The check that is meant to catch a soft mark has been letting some through.
Then there is liquidity. Open-ended funds promise investors a way out. The loans behind them are illiquid and long-dated. That is a maturity mismatch. While money flows in, it is hidden. When redemptions rise, it is not. If redemptions outrun the cash available, the fund must either gate, meaning suspend or limit withdrawals, or sell assets in a hurry at a discount. For a registered scheme this is not a free choice. A scheme is only liquid if liquid assets make up at least eighty per cent of the value of scheme property (section 601KA of the Corporations Act 2001 (Cth)). If it is not liquid, members can only withdraw through formal withdrawal offers. Many investors do not learn this until the gate comes down.
Feeder funds add a further twist. An Australian feeder that invests into an offshore master fund inherits the master’s liquidity. If the offshore fund gates, the Australian investor is gated too, even though the local fund looks calm on its own. ASIC flagged this exact path. It is the most likely route by which an offshore problem reaches an Australian retail investor.
So what will the 30 June cycle expose? In our view, several things. Some funds will take the write-downs they had deferred, and net asset values will step down. Disclosure of arrears, defaults, impairments and capitalised interest will improve, because boards and auditors will press for it. Some funds will move to withdrawal-offer mechanics or gate redemptions. Auditors, having been named, will challenge marks harder, and we expect more qualified opinions and more emphasis-of-matter paragraphs. And ASIC, which already has investigations on foot, will act on the gap between a product sold as stable or low risk and a portfolio that does not behave that way.
Where the legal exposure sits
ASIC’s notice creates no new duty. It presses the duties that already apply. For a fund manager, those duties are the exposure.
Every operator holds an Australian financial services licence. Section 912A(1)(a) of the Corporations Act requires it to do all things necessary to ensure its services are provided efficiently, honestly and fairly. Section 912A(1)(aa) requires adequate arrangements to manage conflicts of interest. A valuation process run by the deal team, feeding the fee line, with no independent check, is hard to square with either limb.
A registered, retail scheme adds the responsible entity duties in Chapter 5C. The responsible entity must act in the best interests of members and, where its interests conflict with theirs, put members first (section 601FC(1)(c)). It must treat members of the same class equally (section 601FC(1)(d)). It must ensure scheme property is valued at regular intervals appropriate to the nature of the property (section 601FC(1)). It must comply with the scheme’s compliance plan. The officers of the responsible entity carry their own duties under section 601FD, and the general directors’ duties in sections 180 to 184 sit on top.
Then there is conduct. Section 1041H of the Corporations Act, and section 12DA of the ASIC Act, prohibit misleading or deceptive conduct in relation to financial products and services. A label is conduct. So is an information memorandum, a product disclosure statement and a marketing deck. If a fund is described as stable or low risk, and the marks that support that description are soft, the description is exposed. ASIC made the point plainly: products described as stable or low risk may behave very differently when conditions tighten.
The claims come from three directions. Investors who lose money will look at the disclosure, the valuations and the duties. ASIC will look at the same things, with stop orders, licence conditions and enforcement in hand. And where retail losses cluster, a class action follows the disclosure. Directors and officers should expect their own decisions on valuation, impairment and redemption to be examined, with the benefit of hindsight, against the records made at the time. The records made at the time are the defence.
The restructuring and insolvency angle
There is a clear restructuring and insolvency angle, and it runs on two tracks at once.
The borrower track
The borrowers in the stressed parts of the market are often developers. They face the pressures ASIC named: cost escalation, delays, soft presales, unsold stock and a harder refinancing market. When a borrower cannot refinance or repay, the lender’s choices narrow.
The first response is usually a workout. A standstill buys time. An amend-and-extend resets the terms. Both can be sensible. Both should be priced into the mark, as above, and documented with care. If the workout fails, enforcement follows. A secured lender can appoint a receiver. A receiver who sells the secured property owes a duty under section 420A to take reasonable care to sell for not less than market value, or, where there is no ascertainable market value, for the best price reasonably obtainable. In a soft market, that duty is where disputes start.
Two traps deserve a flag. The first is the ipso facto stay. Since 1 July 2018, a counterparty generally cannot enforce certain contractual rights, such as a right to terminate or accelerate, merely because the company has entered a formal insolvency process such as voluntary administration. Loan documents drafted without this in mind can leave a lender with fewer rights than it expected. The second is the voidable transaction. If a distressed borrower repaid a loan, or granted fresh security, in the months before it failed, a later liquidator can challenge that payment or security as an unfair preference under section 588FA, within the relation-back period in section 588FE, and seek to claw it back under section 588FF. A repayment that felt like a win can become a liability.
Personal guarantees are the other lever. Sponsor and director guarantees often sit behind a development loan. They are only as good as the guarantor’s balance sheet and the drafting. A guarantee review, before enforcement, is time well spent. So is a security perfection audit under the Personal Property Securities Act 2009 (Cth). An unperfected or mis-registered security can drop a lender from secured to unsecured at the worst moment.
The fund track
The fund itself can be the distressed entity. A run on redemptions, or a cluster of impairments, can force a fund into an orderly wind-down. For a registered scheme, that means working through the withdrawal-offer machinery, managing the fairness between exiting and remaining members, and, in a hard case, weighing whether the responsible entity should be replaced. A fund that has not read its own constitution on gating and withdrawal before the pressure comes will read it under the worst conditions.
The two tracks meet in the valuation. A write-down on the borrower track lowers the net asset value on the fund track. That can trigger redemptions, which force sales, which crystallise the write-down. The loop is real, and it runs fast once it starts.
A worked example
Consider a fund with an open-ended structure and a portfolio weighted to construction lending. One loan funds a residential development by a sponsor to whom the fund has lent three times. Interest is capitalised; no cash has been paid for nine months. Presales are soft and two trade contractors have walked. The sponsor asks for a twelve-month extension and a covenant waiver. The fund agrees, and keeps the loan at par. At 30 June, the auditor asks how a loan that has paid no cash, lost presales and needed an extension can sit at par. The fund cannot answer to the auditor’s satisfaction. It takes a write-down across all three loans to the sponsor, because the exposures are linked. The net asset value falls. A feeder that markets the fund as stable income sees redemption requests jump. The cash is not there. The fund gates. Investors who were told stable ask their lawyers what happened. The sponsor’s project stalls, a receiver is appointed, and the site sells in a soft market under the gaze of section 420A. ASIC, already reviewing the fund’s audit file, asks why the mark stayed at par for nine months. Every step in that chain was avoidable at the valuation. That is ASIC’s whole point. |
What to do before 30 June, and after
Refresh the marks now.
Challenge each material assumption. Do not wait for a formal default. This is ASIC’s express instruction, and it is the first thing a court or a regulator will test.Separate the valuation from the deal and the fee.
Give the valuation function independence from the people who wrote the loan and the people paid on the result. Document the methodology. Back-test past marks against what actually happened.Treat capitalised interest and amendments as signals, not cures.
Where interest is being rolled up, or a loan has been amended to avoid a default, ask whether an impairment is due. Write down the reasoning.Correlate concentrated exposures.
Value linked loans to the same sponsor together. Stress-test the failure of your largest sponsor and see what it does to the portfolio.Match liquidity to the assets.
Model redemption scenarios. Map any feeder-fund pass-through risk. Read your constitution on gates and withdrawal offers before you need them.Fix the words.
Use consistent, written definitions of default, arrears, impairment and security. Make sure stable and low risk are claims the portfolio can carry.Map and manage the conflicts.
Valuation, fees, margin allocation and impairment each carry conflict. Bring independent oversight to each, and record it.Keep the board close.
ASIC’s first principle puts valuations, conflicts, liquidity and impaired assets in front of the board. Minute the challenge, not just the decision.Pre-position for a workout.
Audit your security under the PPSA. Check your guarantees. Map your enforcement options and the ipso facto position before a borrower fails.Build the record.
ASIC is reading financial reports and audit files. Contemporaneous notes of valuation judgement and board challenge are the best defence you can hold.
How Ironbridge handles it
We act for private credit and non-bank lenders at the hard end of the portfolio. Before a borrower fails, we run security and guarantee reviews and scope enforcement. When a borrower fails, we run the workout: standstills, amend-and-extend, receivership, voluntary administration and deeds of company arrangement, and the recovery litigation that follows. We enforce guarantees and pursue cross-border recovery where assets sit offshore. On the fund side, we advise on redemption and gating questions, on responsible-entity exposure, and on ASIC engagement and investor disputes when they come. Trevor Withane leads on enforcement and disputes. Blake Shaw leads on restructuring and insolvency.
Frequently Asked Question
Further Information
For further information about private credit valuation risk, fund liquidity and gating, borrower workouts, enforcement options, and responsible entity exposure, please contact the authors of this article:
