Private credit in Australia
Private credit in Australia: growth, risks and what ASIC’s latest report means for you
The Australian private credit market has exploded over the past decade. A new report prepared for ASIC by Nigel Williams and Richard Timbs takes a hard look at how this market actually operates – and where things may be going wrong.
This article distils that 46-page report into the key insights for borrowers, investors and advisers.
What is “private credit” – and why does it matter?
The report uses a broad definition of private credit: non-bank, non-consumer lending that is not publicly traded or widely issued, covering everything from senior secured loans through to mezzanine, special situations and real estate development finance.
Globally, private credit now sits at around US$2.5 trillion of assets under management and has roughly quadrupled over the decade to 2023.
In Australia, estimates put the market at roughly $200 billion, with:
40–60% in real estate (much of it construction and development)
20–40% in corporate/commercial lending
10–30% in asset-backed/securitised structures.
Private credit emerged as banks pulled back from higher-risk lending after the GFC and as superannuation and private wealth chased higher yields in a low-rate world. Done well, it fills a genuine funding gap for businesses and projects that can’t access bank or bond markets on acceptable terms.
Who is involved? Borrowers, investors and structures
Borrowers include:
corporates (listed, unlisted and private-equity owned)
infrastructure businesses
real estate developers and asset managers
non-bank lenders and structured credit arrangers.
Investors range from the very sophisticated to mum-and-dad retail:
major superannuation funds and insurers (APRA-regulated)
global and local asset managers
family offices and high-net-worth investors
wholesale “sophisticated” investors and SMSFs
increasingly, the broader retail market (directly or via platforms and products).
The structures are equally diverse: closed-end and open-end funds, feeder and platform vehicles, listed and unlisted funds, and SPVs and warehousing arrangements that sit between investor capital and the ultimate borrower.
Where the market is working – and where it isn’t
At the institutional end – large super funds, insurers and top-tier global managers – ASIC’s consultants see generally sound practices:
robust governance and independent oversight
clearer valuation policies
transparent fee structures where all borrower fees flow back to investors and management fees are fully disclosed.
The concerns arise mainly in real-estate-heavy funds and products targeting wholesale “sophisticated” and retail investors, often via platforms. In this segment the report finds:
more conflicts of interest
opaque or incomplete fee disclosure
inconsistent or non-independent valuations
marketing that emphasises stable monthly income without clearly explaining how that income is generated.
The market also hasn’t been through a full credit downturn since this asset class ramped up – meaning many business models, valuation approaches and liquidity promises are untested under stress.
Four main areas of concern
1. Conflicts of interest
Conflicts arise around fees, valuations, related-party exposures and capital-stack positioning. Examples include:
Fee incentives – managers keeping 50–100% of borrower-paid upfront and default-related fees. This can tilt negotiations towards higher once-off fees rather than higher ongoing margins for investors.
Net interest margin capture via SPVs – the fund lends to an SPV at, say, 8%, the SPV lends to the borrower at 12%, and the manager keeps the 4% spread plus any performance fee calculated off the investor return.
Related-party deals – lending to related developers, moving loans between related funds, or holding both debt and equity (or senior and mezzanine) in the same borrower without robust, independent oversight.
Multiple positions in the capital stack – where the same manager controls senior, mezzanine and equity, decisions in a workout can favour one sleeve over another if conflicts aren’t properly managed.
The report doesn’t say conflicts must be eliminated; it says they must be fully disclosed and independently overseen.
2. Fees and manager remuneration
Fee structures are extremely varied and often hard for investors to piece together. Key points:
Many funds disclose only a base management fee (e.g. 0.5–1% p.a.), while non-disclosed borrower-paid fees and spreads can be three to five times that amount.
Best-practice (more common among global managers) is that all loan fees are paid into the fund, and the manager earns clearly disclosed base and performance fees.
In many domestic funds, particularly real-estate focused, managers retain most or all borrower fees and sometimes a share of default interest and workout fees.
Short-tenor loans and frequent restructures can create a commercial incentive to “churn” loans and generate more upfront fees – not always aligned with investor outcomes.
ASIC is encouraged to look closely at whether total manager remuneration (including hidden spreads and borrower fees) is being clearly quantified as a percentage of funds under management.
3. Valuations, portfolio transparency and distributions
The report is blunt: valuation and portfolio reporting practices are inconsistent and often inadequate.
Issues include:
Frequency & independence – some funds do not obtain quarterly valuations and rely on internal credit teams (whose bonuses may depend on valuations) rather than independent third parties.
Real estate valuation practices – marketing often quotes low LVRs based on old valuations, gross (not net effective) rents, or forecast completion values rather than current or cost-based metrics – all of which can understate risk in construction and development loans.
Provisioning and impairments – despite portfolios heavily exposed to sub-investment grade and development risk, some managers report no impairments, which the authors describe as inconsistent with rating-agency default data.
Portfolio reporting – some funds provide detailed loan-level breakdowns (similar to US Business Development Companies), but many provide only high-level marketing material.
On distributions, the report is particularly concerned about high, remarkably stable monthly yields from construction-heavy portfolios that generate little or no cash interest during the build phase. In many cases, distributions are likely being funded from capital drawdowns or new investor money – something rarely made explicit in investor reports.
4. Terminology and liquidity
Key terms are used inconsistently, including “investment grade”, “senior secured”, “LVR” and even “secured”, creating room for misunderstanding or mis-selling. The authors recommend clearer, standardised definitions.
On liquidity, they highlight:
increasing use of open-end and evergreen structures promising periodic redemptions
a potential mismatch between investor expectations and the true liquidity of underlying loans, especially in stress
reliance on new inflows and loan extensions to manage redemption queues.
Global regulators (such as the Financial Stability Board) are already focused on liquidity mismatch in open-ended funds – and the report suggests this work is highly relevant to Australian private credit.
Real-estate development: the risk hot-spot
The segment that most worries the authors is real-estate construction and development finance, particularly where:
loans are negative-cash-flow (interest is capitalised or funded from loan proceeds)
valuations rely on optimistic completion values and older cost assumptions
funds still advertise conservative LVRs and steady monthly income to SMSFs and retail investors.
They regard this as the area most likely to generate losses in a downturn, with potential systemic implications for SMSFs, small super funds and “sophisticated” investors who have been sold the story of “defensive high yield” without fully grasping the underlying risk.
Overseas context and regulatory direction
Internationally, regulators are moving (sometimes slowly) towards:
more detailed fee and expense disclosure for private funds (e.g. the SEC’s focus on private fund adviser rules in the US)
frameworks for retail access to private markets with calibration of risk (e.g. UK Long-Term Asset Funds, Europe’s ELTIF regime and Singapore’s proposed long-term investment fund rules)
closer scrutiny of liquidity mismatch in open-ended funds.
The report suggests ASIC could:
step up guidance on conflicts, valuations, fees, liquidity and distribution disclosure
consider reporting frameworks that allow regulators to monitor concentration and systemic risk, particularly in real-estate development
encourage or support industry-led best-practice standards.
What “good practice” should look like
The authors propose a practical checklist of better-practice standards for Australian private credit managers, including:
Quarterly portfolio reporting with:
number of loans and borrowers
large-loan concentrations (>5% of the fund)
loans in arrears and impairments
percentage of loans using PIK or paid from principal
proportion of distributions funded from cash income vs capital.
Quarterly independent valuations (or at least independent review) of loan portfolios.
Full fee transparency – disclosing all fees and spreads earned by the manager from both investors and borrowers, expressed as a percentage of fund assets.
Clear treatment of related-party transactions, including independent sign-off where exposures exist across multiple funds or up and down the capital stack.
Plain-English definitions of key terms like “secured”, “senior”, “investment grade” and “LVR”, with real-estate LVRs broken out by cost, progress and completion metrics.
Clear liquidity and leverage policies, including how redemptions are funded in a downturn.
Practical takeaways for investors and borrowers
For investors (including trustees of SMSFs and small super funds):
Look past the headline “monthly income” and ask precisely how distributions are funded.
Request clear disclosure of all fees and spreads, not just the base management fee.
Ask who performs valuations, how frequently, and whether impairments and provisioning are consistent with the risk profile being marketed.
Treat labels like “senior secured”, “defensive” or “investment grade” as starting points, not conclusions – insist on seeing the underlying structure and security.
For borrowers:
Expect more questions from regulators and sophisticated investors about fee flows, related-party links, and the robustness of valuations and exit strategies.
Be prepared for private credit providers to become more selective and more transparent with their own investors, which may change the negotiation dynamic around fees, covenants and reporting.
Private credit is now a permanent part of Australia’s financial landscape. The ASIC-commissioned report doesn’t call for radical reform or suggest that the sector is inherently problematic. Instead, it sends a clear message: continued growth depends on better transparency, cleaner alignment of interests and more consistent standards – especially in real-estate development and retail-facing products.
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For more information, please contact Gavin McInnes on 07 3367 8681 or gmcinnes@grmlaw.com.au.
The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW 's legal practitioners who will consider their particular circumstances.
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