Key Takeaways
- • ASIC's second major private credit review found investors still lack sufficient information on fund risks, fees and conflicts, with practices from its November 2025 first report persisting across the market.
- • ASIC reviewed 24 wholesale and retail private credit funds managing a combined $18 billion in AUM between November 2025 and August 2026, prompting six interim stop orders and enforcement referrals.
- • In one case, borrower fees, interest margin and default interest retained by a related-party lender exceeded four times the fund's disclosed management costs, with 38 cents of every $1 distributed going to the fund operator's related party.
- • Some 88 per cent of advice files recommending private credit allocations above 20 per cent failed to demonstrate compliance with the best interests duty.
- • AIMA and the Alternative Credit Council published voluntary guidance for Australian private credit managers, with institutional investors encouraged to use it when assessing managers.
Summary
Australian Securities and Investments Commission (ASIC) has found that investors in private credit funds are still not receiving enough information to understand fund risks, fees and conflicts, according to its second major review of the sector. The regulator examined 24 wholesale and retail funds with a combined $18 billion in assets under management, alongside a sample of financial advice given to retail investors, over the period from November 2025 to August 2026. Practices identified in ASIC's first private credit report, released in November 2025, remained widespread, and the latest findings led to six interim stop orders and referrals for further enforcement investigation.
Layered structures were common: 18 of the 24 funds used multiple intermediary entities, including special purpose vehicles, fund-of-funds structures and warehouse vehicles. Ten of 12 wholesale funds used special purpose vehicles as a material part of their structures, compared with three of 12 retail funds. ASIC also identified related-party dealings in which around 17 per cent and 15 per cent of a fund's assets were transferred to related funds managed by the same group within a single year without full disclosure to investors.
Fee practices drew particular scrutiny. Investors did not receive the full economic benefit of interest and borrower fees in all but two of the funds examined, with seven of 10 retail funds and nine of 12 wholesale funds retaining establishment or origination fees, and two funds not disclosing the practice. In one case, undisclosed charges retained by a related-party lender exceeded four times the fund's disclosed management costs, based on approximate figures. For every $1 distributed to investors, the related party of the fund operator received 38 cents during the relevant calendar year. Nine of the 12 retail funds did not clearly disclose key information for investment decisions, and ASIC considered target market determination settings for 10 retail funds poorly designed. Marketing material for three funds overemphasised returns, stability, liquidity or capital preservation.
Advice findings were similarly concerning. While most reviewed financial advice demonstrated compliance with legal obligations, advisers recommending higher concentrations in a single private credit fund were less likely to demonstrate compliance with the best interests duty. Some 88 per cent of advice files recommending allocations above 20 per cent to private credit funds failed to demonstrate compliance, and the highest single-fund allocation observed was 87 per cent of a portfolio.
ASIC Commissioner Simone Constant said the six interim stop orders issued since September showed practices had not improved in line with the asset class's growth, despite some pockets of progress. "The fact that ASIC has issued six interim stop orders since September this year is clear evidence that practices have still not improved in line with this growth." She added that investors were entitled to understand how their money was used, how risks and conflicts were managed, and whether decisions were made in their interests, adding, "Investors should not need forensic skills to understand how a fund operates." Constant said that as private credit reaches more Australians through retail channels and superannuation, the sector needed stronger standards and urgent action from all participants.
In response, the Alternative Investment Management Association (AIMA) and its private credit affiliate, the Alternative Credit Council (ACC), published voluntary guidance for Australian private credit managers, which ASIC reviewed in full. Developed over more than a year with about 20 member firms, the recommendations cover lending and risk management, transparency, valuations, liquidity, fee disclosure, distributions and conflicts of interest. AIMA and ACC said institutional investors would help drive adoption by using the guidance when assessing managers, and plan workshops, roundtables and industry education throughout 2027. Michael Gallagher, AIMA's managing director and head of Australia, said the guidance "represents the industry's proactive contribution" to the market's maturation.
Layered structures were common: 18 of the 24 funds used multiple intermediary entities, including special purpose vehicles, fund-of-funds structures and warehouse vehicles. Ten of 12 wholesale funds used special purpose vehicles as a material part of their structures, compared with three of 12 retail funds. ASIC also identified related-party dealings in which around 17 per cent and 15 per cent of a fund's assets were transferred to related funds managed by the same group within a single year without full disclosure to investors.
Fee practices drew particular scrutiny. Investors did not receive the full economic benefit of interest and borrower fees in all but two of the funds examined, with seven of 10 retail funds and nine of 12 wholesale funds retaining establishment or origination fees, and two funds not disclosing the practice. In one case, undisclosed charges retained by a related-party lender exceeded four times the fund's disclosed management costs, based on approximate figures. For every $1 distributed to investors, the related party of the fund operator received 38 cents during the relevant calendar year. Nine of the 12 retail funds did not clearly disclose key information for investment decisions, and ASIC considered target market determination settings for 10 retail funds poorly designed. Marketing material for three funds overemphasised returns, stability, liquidity or capital preservation.
Advice findings were similarly concerning. While most reviewed financial advice demonstrated compliance with legal obligations, advisers recommending higher concentrations in a single private credit fund were less likely to demonstrate compliance with the best interests duty. Some 88 per cent of advice files recommending allocations above 20 per cent to private credit funds failed to demonstrate compliance, and the highest single-fund allocation observed was 87 per cent of a portfolio.
ASIC Commissioner Simone Constant said the six interim stop orders issued since September showed practices had not improved in line with the asset class's growth, despite some pockets of progress. "The fact that ASIC has issued six interim stop orders since September this year is clear evidence that practices have still not improved in line with this growth." She added that investors were entitled to understand how their money was used, how risks and conflicts were managed, and whether decisions were made in their interests, adding, "Investors should not need forensic skills to understand how a fund operates." Constant said that as private credit reaches more Australians through retail channels and superannuation, the sector needed stronger standards and urgent action from all participants.
In response, the Alternative Investment Management Association (AIMA) and its private credit affiliate, the Alternative Credit Council (ACC), published voluntary guidance for Australian private credit managers, which ASIC reviewed in full. Developed over more than a year with about 20 member firms, the recommendations cover lending and risk management, transparency, valuations, liquidity, fee disclosure, distributions and conflicts of interest. AIMA and ACC said institutional investors would help drive adoption by using the guidance when assessing managers, and plan workshops, roundtables and industry education throughout 2027. Michael Gallagher, AIMA's managing director and head of Australia, said the guidance "represents the industry's proactive contribution" to the market's maturation.
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