The purpose of the report is for ASIC to give insights on what good operating practices look like and to share some improvements for some operators to adopt. It also highlights emerging risks and areas where greater transparency and governance are needed to protect investor interests. 

Key takeaways from the article published by ASIC 

• Private credit plays a valuable role in the Australian economy, complementing bank and public market lending 

• The market has grown significantly post-GFC, now estimated at $200 billion, with ~50% in real estate-focused finance 

• Growth is driven by superannuation inflows, institutional investment, and demand for yield. 

Key issues identified 

Conflicts of interest 

The review uncovered several critical areas where conflicts of interest and transparency challenges frequently arise. These issues are common across fee structures, valuations, related party transactions, and loan structuring. In some cases, managers retain 50–100% of borrower-paid fees, creating a clear misalignment with investor interests. Additionally, the use of special purpose vehicles (SPVs) to capture excess interest margins further reduces transparency and makes it harder for investors to fully understand the fund’s true economics. 

Fees and remuneration 

Significant concerns were raised about fee transparency and how remuneration aligns with investor interests. Often, fee structures are opaque and inconsistently disclosed, making it challenging for investors to understand the true cost of their investment. In some cases, managers earn several times the disclosed management fee through hidden borrower-paid fees. To promote transparency and comparability, best practice calls for all fees, regardless of how they are charged, to be clearly disclosed as a percentage of fund assets. 

Portfolio transparency and valuations 

The report highlighted inconsistent valuation methods and transparency issues that may mislead investors about the true performance of private credit portfolios. Valuation practices differ widely across funds, with many lacking quarterly independent valuations. For real estate-backed loans, valuations often depend on gross rent or projected completion values, which can significantly inflate asset values. Furthermore, some funds report no impairments, a practice that seems inconsistent with expected default rates and raises questions about the accuracy of their portfolio reporting. 

Terminology 

Inconsistent use of key terms such as “investment grade,” “senior debt,” and “LVR” contributes to investor confusion and risks misrepresenting the true level of risk. This lack of clarity can lead to misunderstandings about the quality and safety of investments, making it harder for investors to make informed decisions. 

Investor protection concerns 

Several investor protection concerns were identified, particularly affecting retail and wholesale investors relying on sophisticated investor exemptions who face higher risks due to a lack of transparency. The report also highlights that real estate construction and development finance is a high-risk, concentrated sector, which may pose potential systemic risks. Additionally, distributions in some real estate funds may be paid from capital rather than income, raising further concerns about the sustainability and safety of returns. 

Recommended good practices  

ASIC recommends several good practices to enhance transparency and investor protection, including quarterly fund composition reporting that covers impairments, PIK loans, and distribution sources. Independent quarterly valuations should be conducted to ensure accuracy, while full and transparent fee disclosure, including all borrower-paid fees, is essential. Clear definitions of key investment terms are important to reduce confusion, alongside comprehensive disclosure of leverage, liquidity mechanics, and governance structures to provide investors with a complete understanding of the fund’s operations. 

Regulatory issues for ASIC’s consideration 

The lists below highlight key areas for ASIC’s attention, identifying market practices and operational issues where enhancements can benefit both the market and investors. Raising standards and improving disclosure in these areas are essential steps toward strengthening trust and confidence in Australia’s private credit sector. 

Priority issues 

• remuneration and fee disclosure 

• related party transactions and governance 

• valuation frequency and independence. 

Secondary issues 

• liquidity mismatch 

• investment reporting standards 

• terminology clarity 

• sector concentration risks. 

International comparisons 

• Australia lags behind the US and Europe in transparency and regulation 

• overseas markets are moving toward greater disclosure, especially for retail investors 

• examples include the UK LTAF, EU ELTIF, and Singapore MAS initiatives. 

Systemic risk 

• not currently a major concern, but real estate development and retail investor exposure are areas to monitor 

• ASIC could consider a reporting framework to track systemic risks and market integrity. 

At SW we regularly assist private credit providers to structure their operations in a way that is transparent, tax effective, and protects investors. Our financial services team can also offer insights into the most effective systems to use as well as provide accounting and assurance services. 

In our experience, private credit providers face several complex challenges during the start-up phase. These include setting up systems, establishing tax structures, ensuring compliance, and building the right relationships and support networks. Addressing these areas early is crucial for enabling business growth and maximising its potential. 

More mature private credit funds tend to encounter increasingly complex issues, often related to compliance, sustaining growth, and maintaining the quality of their loan portfolios. Navigating these challenges requires robust operational frameworks and ongoing oversight. 

Putting good operating structures in place, such as those recommended by ASIC, not only positions private credit providers for long-term success but also protects investors, creditors, and directors from compliance risks and financial setbacks. 

How SW can help 

Our financial services team has deep experience working with private credit providers across all stages of maturity. We offer tailored solutions to help start-ups establish strong foundations and support mature funds in managing growth, regulatory compliance, and portfolio quality. From designing transparent fee structures to implementing governance frameworks and performing independent valuations, we provide end-to-end support that promotes operational excellence and investor confidence. 

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Our team has worked with many of Australia’s financial institutions and have a deep understanding of funds management, banking, insurance and financial services generally. 

Our reputation has grown alongside our expertise into most parts of the financial services sector across all service lines of our business:

• funds – including ethical investing
• superannuation
• banks – including digital & neos
• insurers
• private equity
• stockbrokers
• financial planners
• custodians
• responsible entities.

The pace of regulatory change in financial services is unprecedented, with the ever increasing involvement of regulators globally. Financial services institutions need constantly to review and revise their practices and procedures to meet the challenges of this evolving landscape.  

We value the relationships we have built with many financial services institutions. We believe the success of these relationships is determined not just by the quality of our services, but also our awareness of the unique aspects of the financial services sector and our approach that is tailored to your organisation because we know that one size does not fit all. 

This is an industry we know well and regularly offer technical training to our clients’ financial teams. 

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