Report On Private Credit In Australia – ASIC Insights

ASIC has published a report providing a high-level review of the private credit market in Australia. Entitled "Private credit in Australia", REP 814 (the Report) was commissioned by ASIC and authored by Richard Timbs (an infrastructure investment executive) and Nigel Willams (a former banker and chief risk officer) and released publicly on 22 September 2025.

ASIC described the Report as providing "foundational insights on the size and nature of the sector in Australia, including examples of better and poorer practices and areas for industry and regulator attention."

The Report is based on a variety of sources, including both public and non-public information and interviews with over 30 parties involved in or with knowledge of the private credit market.

We expect that the Report, whilst high level, provides an indication of the likely direction and focus of ASIC's ongoing investigation into Australia's private credit sector. ASIC has publicly stated that insights from the Report, particularly those relating to valuations, liquidity and transparency, align with its own early findings about the private credit market. ASIC's report based on its surveillance of the private credit sector is due to be released in November 2025.

The Report can be found here. We have outlined below some of the Report's key findings, as well as what can be expected to follow in coming months.

Recognition of the growth and potential of the Australian private credit market

The Report recognises there has been material growth in the Australian private credit market since the GFC, both in the size of the market and the breadth of its activity.¹ This market growth is attributed to various factors including increasing superannuation inflows, changes in portfolio allocations towards 'alternative' investments, offshore asset managers seeking to access investment fund flows in Australia and growing private wealth from family offices and similar types of money.

The Report is cautiously optimistic about private credit's contribution to economic growth, stating that it can have a valuable role to play in the Australian economy, where it is "done well". It is a source of financing that complements the bank and public markets, and can allow some borrowers access to financing that would otherwise not be available to them.

These observations about the growth and role of the private credit market in Australia are consistent with industry responses from our Pulse on Private Credit Investment in Australia 2025 survey released earlier this year, which can be found here.

Composition of the Australian private credit market

The authors pide the Australian private credit market into three main segments, and estimate the market share of each as follows:

• corporate/commercial lending: 20-40%
• asset backed/securitised lending: 10-30%
• real estate lending: 40-60%

For these purposes, distressed debt or equity like instruments are characterised as a "sub-asset class" within each of the three broad categories outlined above.

Importantly, the authors recognise that private credit is not a "homogenous product", with wide variation in the risk appetite and approach of managers, leading to differing approaches in both portfolio construction and the terms and conditions, covenants, pricing and leverage of the loans being advanced to borrowers.

How private credit in Australia differs from other markets

The authors identify four features of the Australian private credit market that they consider differentiate it from private credit in other markets overseas:

• the proportion of private credit invested in real estate and the concentration in higher risk construction and development lending;
• the relative lack of transparency in fund disclosure (in relation to matters such as portfolio mix, impaired assets, income-producing versus non-income-producing loans and related party transactions);
• the lack of funds obtaining independent loan valuations on a quarterly basis; and
• the fee structures of many Australian private credit funds, which include fees paid by borrowers directly to the manager.

Type of private credit funds

The Report distinguishes between different types of credit funds.

It recognises that the institutional end of the market, which includes private credit funds that target very large superannuation funds and insurance companies as investors, raise fewer concerns. This is because (according to the Report) those funds are already operating in a manner that demonstrates good operating practice, including many of the established practices from the "more advanced" markets in the US and Europe.

The Report highlights greater concerns for funds which target wholesale "sophisticated" and retail investors, particularly those involved in real estate construction and development finance. The Report concludes that these funds represent the "greatest priority" for addressing some of the concerns described below.

Areas of concern

The Report highlights four key areas of concern in Australia's private credit markets:

• Conflicts of interest: the Report states that conflicts are "prevalent" across fee structures, valuations, related party transactions and loan structuring. It notes various examples, including the retention by managers of a large proportion of upfront fees (which could be perceived as a conflict with investors' interests of maximising the interest margin), the use of SPVs as lending entities where the interest on the loan is not fully passed through to investors, loans being made to related entities or being transferred between related funds without independent valuation oversight and funds having exposures for the same borrower at different levels in the capital stack (senior, mezzanine and/or equity).
• Fees and remuneration: the Report notes that there are a wide range of fee structures in the market which are "often opaque", and not quantified, and that many can give rise to conflicts or potential conflicts of interest. Particular examples cited include the disclosure of manager remuneration and the tendency for domestic funds to retain a high proportion of borrower fees which are often not disclosed as part of the headline management remuneration figure. The Report suggests best practice is for borrower fees to be paid directly to investors, with managers charging separate and transparent management fees.
• Portfolio transparency and valuations: inconsistencies in valuation practices and portfolio disclosures, including with respect to the frequency of valuations, whether these are conducted internally or independently and the methodology underpinning valuations. This can impact on the reported performance of a fund and risk assessment by investors. The Report also highlights the "surprising" lack of impairments reported by funds, particularly where operating in sectors involving higher-risk lending.
• Terminology: the Report identifies key terms that are commonly used but are not clearly or consistently defined, including "investment grade," "security", "loan-to-value ratio" and "senior debt". This reduces transparency and can lead to investor confusion.

The Report also notes that the Australian private credit market has not yet experienced a downturn. The Report highlights some areas of concern for funds should this occur, particularly with respect to the availability of liquidity and the sustainability of remuneration models based on borrower fees and which are predicated on growth.

Issues for ASIC's consideration

The Report sets out a number of specific topics and issues for ASIC's consideration. The priority areas for ASIC are:

• remuneration and fees;
• related party transactions and governance; and
• valuations.

However, the Report also recommends that ASIC consider liquidity, investment reporting, definitions/terminology and concentration risk as secondary issues.

Opportunities for improvement – views on good practice

While the Report does not make specific recommendations, it does provide an overview of what its authors consider to be good practice in certain areas. This can be broadly grouped into the following categories:

• regular fund composition reporting: to occur quarterly and to include a minimum level of disclosure (the Report suggests various matters to be included such as those loans exceeding 5% of the portfolio, the percentage of the fund comprising loans that may be stressed or impaired, loans not paying cash interest, and the sources of distribution payments);
• regular loan valuations: to occur quarterly and to be completed by independent third parties or audited and signed off by independent third parties;
• related party transactions: no related party transactions or, where they occur, transparent disclosure and independent third party review and sign off;
• increased transparency and disclosure: particularly with respect to: (i) all manager fees and other remuneration earned by managers (both upfront and ongoing); (ii) a fund's involvement in multiple levels of the capital stack (and where funds are invested in mezzanine debt and/or equity, and the amount so invested); (iii) related party or inter-fund transactions; (iv) fund leverage levels, policies and guidelines; and (v) fund liquidity mechanics and impact on investors;
• governance: use of an independent trustee or independent members on a responsible entity board;
• terminology: clear definition of terminology, as well as disclosure of the basis of any ratings which are assigned to a loan (including whether ratings are internal or by accredited third-party agencies).

The authors suggest that best practice operations and reporting for the Australian private credit market could be incorporated into industry-led guidance, potentially involving groups such as the Financial Services Council, the Australian Investment Council, and the Alternative Investment Management Association and their respective members.

Next steps

ASIC has indicated that its early findings from its surveillance of the sector align with the insights in the Report as to better and poorer market practices. It has encouraged industry bodies to use the findings "as an opportunity to review local and international standards and approaches, and to proactively enhance Australian industry standards in the private credit sector", noting many existing standards may offer guidance in that regard.

ASIC has also noted that some of the practices identified in the Report are potentially inconsistent with existing financial services law and ASIC guidance, referencing the requirement to provide financial services efficiently, honestly and fairly, and to avoid misleading or deceptive statements.

As we have previously described, the private credit sector is subject to a range of existing regulatory obligations. Since the Report was issued we have seen ASIC exercise its powers under the Design and Distribution Obligations regime to put in place interim stop orders connected to a number of private credit funds. ASIC has stated that it has commenced enforcement investigations for "instances of more egregious conduct". We expect that ASIC's active investigations and oversight of the private credit sector will continue, with the priority areas identified in the Report (and in ASICs statements) likely to be a particular focus.

In November 2025, ASIC is due to release its own findings from its surveillance across the private credit market, which will be accompanied by additional expert reports relating to private and capital markets, ASIC responses to the surveillance findings, expert insights and stakeholder feedback. ASIC has also indicated this will include guidance principles for compliant private credit, and a roadmap that includes industry standards and future surveillance activity. Given the findings of the Report, we expect much of ASIC's focus will be on funds targeting wholesale "sophisticated" and retail investors, as well as those operating in what are perceived to be higher risk areas.

We will provide a further update on this once it is released.

Our full service, cross practice team are on hand to lead your business through the ever-developing private credit landscape. Please get in touch with any of the key contacts below to discuss.

Footnote

1. The authors reference EY's estimate that the Australian private credit market was $213 billion in 2025, although noting the difficulty in precisely measuring private credit given the lack of definitive data, that much information is not publicly available and the fact that it is not a homogenous product.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.