Public statements on private credit: ASIC scrutinises Australia’s $200 billion private credit market

 The Australian Securities and Investments Commission has released a comprehensive report commissioned by it on the nation’s rapidly growing private credit sector. The report highlights significant concerns about transparency and investor protection across the $200 billion market.

The report reveals that large superannuation and institutional investment generally demonstrate sound governance and transparent practices, while others may fall short of expected standards. This divide is most pronounced in real estate focused funds which comprises approximately half the market.

Key areas of identified concern include:

Conflicts of interest – conflicts are described as ‘prevalent’ across the sector;

Fees disclosure – gaps in fee disclosure and the opaque nature of fees;

Valuations and portfolio disclosures – the frequency and independence of portfolio asset valuations appear to vary across the market and disclosure of valuation risks vary (particularly in higher-risk real estate construction and development financing);

Terminology – common industry terms like ‘senior debt’ and ‘loan to value ratio’ are used in varying circumstances creating investor confusion.

Fund managers should anticipate a regulatory response to the report from ASIC that will heighten scrutiny of their operational practices.

As the market matures, the distinction between market operators adhering to best practices and those relying on less transparent practices (including fee structures) is likely to become a competitive differentiator – and a regulatory imperative.

Read the full report here REP 814 Private credit in Australia | ASIC.

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Disclaimer

This information is general in nature. It is intended to express the state of affairs as of the date of publication.  It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.