ASIC warns private credit funds to improve

The Australian Securities and Investments Commission (ASIC) has issued a stern warning to private credit managers, stating they are “well beyond warnings” and must enhance their practices by year-end. ASIC Commissioner Simone Constant highlighted the sector’s slow response to identified weaknesses, urging immediate action to avoid regulatory enforcement.

ASIC’s surveillance of 28 private credit funds found several “red flags”, including a lack of transparency about interest rates and inadequate credit management policies. Only four funds published information about the interest rates or ranges charged to borrowers, and less than half had detailed credit or impairment and default management policies in place.

Regulatory Action

Following its reports, ASIC put together 10 guiding principles to demonstrate best practice in private credit. The regulator had previously challenged firms to improve their practices by the end of 2027, but Constant said not all had heeded its call. If fund managers are still unable to meet the regulator’s standards, Constant said enforcement action would be next on the list.

“We challenged the sector to lift standards by 2027 – and that’s only three months away,” Constant said. “So as an industry, you need to drive this change, because if you don’t, ASIC may be forced to do it for you, through regulatory and enforcement action.”

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Industry Risks

The collapse of property developer Bathla Group, which went into administration in August owing $3 billion, has highlighted the risks in the private credit sector. Real estate lending accounts for 40-60 per cent of private credit in Australia and is vulnerable to factors such as inflation, cost escalation, and interest rate rises.

Constant said the collapse of Bathla was “deeply concerning” but not unsurprising, given the pressure on the system. “As we’ve seen with Bathla, developers with exposure to private credit are particularly vulnerable when economic conditions become more challenging,” she said.

The sector’s weaknesses are being tested at scale for the first time in current conditions, and ASIC is urging fund managers to lift their standards and maintain them consistently. “Whether we see broader credit stress or not, certainly the tide is going out on poorer private credit practices,” Constant said.

ASIC’s 10 guiding principles provide a framework for best practice in private credit, and fund managers are expected to assess themselves against these principles. By doing so, they can ensure that they are operating at a high standard and reducing the risk of stress fractures in the system.