Australia’s private Credit Sector on notice – ASIC Report 814

On 22 September 2025 ASIC released Report 814 ‘Private Credit in Australia’ (the Report’) as a follow up to the earlier Discussion Paper ‘Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets.’

The Discussion Paper garnered significant engagement with industry off the back of ASIC announcing ‘increased surveillance’ in respect of private market activity, specifically targeting corporate advisors, superannuation funds and private credit/equity funds.

The Report and accompanying media release from ASIC notes early findings have identified practices, particularly in relation to valuations, liquidity and transparency, are inconsistent with financial services law and ASIC Guidance. Particular focus has been placed on the practices of real estate-based funds, which is unsurprising given that half of the estimated $200B within the private credit sector is invested in or secured by real estate/real assets. The Report highlights a prevalence within this market segment for conflicts of interest, opaque fee and interest margin arrangements, inconsistent and non-independent valuation methodologies, and ambiguous terminology.

Enforcement is already underway – with stop orders being issued against two private credit funds managed by La Trobe and one managed by RELI Capital. It is pertinent fund managers are apprised of the findings of the Report and adapt practices accordingly.

Importantly, the Report provides ‘good practice’ guidance for fund managers specific to a number of ‘priority issues,’ which require improvement. We have compiled the issues for consideration, along with the relevant practical guidance below:

Remuneration and fees

Issues fo ASIC consideration:

1. Potential for misalignment between manager and investors through various forms of manager remuneration (e.g. fees payable to a manager directly by borrowers).
2. Disguising of manager remuneration or otherwise poor disclosure.
3. Weak disclosure and often non-existent quantification of manager fees and other forms of remuneration not directly payable by investors (e.g. managers not disclosing an interest rate differential (net interest margin) between the ultimate lenders (investors) and borrower where this is facilitated by use of an SPV).

Good practice / ASIC expectations:

1. Fees – all fees and earnings (including any interest earned) by managers as a result of managing investor money are disclosed, including but not limited to upfront, establishment, arrangement, origination, base, performance and workout fees, as well as default interest and/or net interest margins. Note: the treatment and reporting of ‘fee sharing’ from borrowers could be reviewed. Best practice would be that all fees received by managers from the fund or borrowers are disclosed as a proportion of funds invested.
2. Alignment of disclosure principals with ASIC RG97 to ensure total remuneration is disclosed in prospectus’, offer documents and information memorandums.

Related party transactions and governance

Issues fo ASIC consideration:

1. Managers lending to related parties.
2. Managers holding debt and equity in the same entity via the same fund or via related funds, potentially creating valuation and governance issues.
3. Managers holding debt positions in the same entity via related funds (e.g. senior debt fund and mezzanine fund).
4. Transferring investments between funds managed by the same manager, potentially creating valuation and governance issues.
5. Disclosure of fees payable to or received from related parties.

Good practice / ASIC expectations:

1. Related party or inter‑fund transactions (managed by the same or related manager) are transparently disclosed and have been reviewed and signed off by an independent third party.
2. Alignment of disclosure principals with ASIC RG46 for related party transactions.
3. Alignment of disclosure principals with ASIC RG121 for managing conflicts of interest.

Valuations

Issues fo ASIC consideration:

1. Frequency of valuation.
2. Method of valuation.
3. Beneficiary of valuation.
4. Independence of valuation.

Good practice / ASIC expectations:

1. Disclosure where valuations are conducted on a gross rent basis.
2. Loan valuations are undertaken quarterly by an independent third party, or at least audited or signed off quarterly by an independent third party.
3. Implementation of updated terminology and explanations:
4. LVR signed off by an independent third party quarterly, as at the disclosure date, to help mitigate both historical and future LVR issues.
5. For construction/development projects, statement of both a loan‑to‑progress value (i.e. based on the percentage of construction achieved) and an expected loan‑to‑completion value (i.e. based on an estimate of value at completion).
6. Valuation prepared on a net effective rent basis.
7. Valuation prepared for the lender/securityholder to gain the benefit of reliance.
8. Use and disclosure of an independent third‑party valuation where real estate is refinanced from one fund to another.
9. Disclosure of the percentage of loans (by value) where cash interest cover, used to pay distributions, is less than 1 times.

Liquidity

Issues fo ASIC consideration:

1. The adequacy of disclosures about opportunity and process based on type of fund (closed‑end, open‑end).
2. Facilitation of liquidity and addressing risk of liquidity mismatch between investor liquidity requirement and asset pool or funding source, including portfolio stress testing.

Good practice / ASIC expectations:

1. Liquidity – the prospect (or otherwise) of liquidity, the mechanics of liquidity and the potential impact on investor returns of achieving liquidity are clearly disclosed in marketing and product information and ongoing investor reports.
2. Alignment with ASIC RG240 for those operating managed investment schemes.

Investment reporting

Issues fo ASIC consideration:

Mixed investment reporting across the market, leading to lack of visibility of investment exposure, especially for retail segment of market.

Good practice / ASIC expectations:

1. Fund composition reporting and disclosure happens quarterly and includes the:
   1. Number of loans and borrowers in portfolio.
   2. Percentage of loans and/or related borrowers representing greater than 5% of the fund and, in that case, the specific percentage of the fund.
   3. Percentage of the fund where loans may be stressed or impaired, including number of loans in arrears and time in arrears.
   4. Proportion of distributions paid from (i) cash income from investments and (ii) other sources.
   5. Number of loans and percentage of the fund by value not paying cash interest or paying from principal drawdown (either structured or not structured).
   6. Percentage of fund invested in credit rating bands (investment grade or non‑investment grade).

Definitions and use of key terms

Issues fo ASIC consideration:

Clear and consistent explanation of key terms where some key terms are inconsistently used or vague.

Good practice / ASIC expectations:

1. Implementation and use of updated terminology – key investment terms are clearly defined, such as:
   1. Security: with a clear statement of what the security is – i.e. whether security is direct over an asset or property (mortgage) or whether over shares in the borrower or a holding company or an SPV (structural subordination).
   2. Senior: with confirmation that no other potential form of security ranks above (refer to previous point).
2. Where credit ratings or terms such as ‘investment grade’ are used, information on whether ratings are internal or from an accredited third‑party rating agency is clearly articulated.

Concentration

Issues fo ASIC consideration:

1. Risk of an unknown amount of debt and level of credit risk in any sector, particularly real estate.
2. Exposure of retail investment to private credit market.

Good practice / ASIC expectations:

Fund leverage is disclosed in investor reports, along with the fund’s leverage policy and guidelines (and limit if applicable).

We urge fund managers to review practices and governance structures in anticipation of further ASIC action in enforcing the adoption of best practices guidance. This will accompany ASIC’s enduring priorities and continue to directly impact AFS Licensees and their office holders / natural persons.

In response to the current regulatory environment, it is essential that fund managers ensure adequacy of coverage available to them under their Investment Managers Insurance policies.  We note the requisite structure of policyholders is fundamental to ensure the avoidance of prejudicial exclusions, particularly in relation to regulatory inquiries.