ASIC fires another shot at private credit to ‘wholesale clients’
Just a few days after placing an interim stop order on two La Trobe private credit funds and amid criticisms of Metrics, the Australian Securities and Investments Commission (ASIC) has released new critical research of private credit in Australia.
The research paper, released today, has found positives in the private credit sector but has also pointed to problems, particularly those segments of the market targeting wholesale investors.
The report highlights four key areas of operation requiring improvement:
- Conflicts of interest including free incentives and related party transactions’
- Fees and remuneration including disclosure gaps
- Terminology including referencing invest grade without formal ratings agency involvement
It said funds with large superannuation and institutional investment, and the best international private credit managers operating in Australia, generally demonstrate sound governance, and transparent valuation and fee practices.
However, it then said “segments of the market targeting wholesale investors using the ‘sophisticated investor’ exemption and retail-based offerings, including platforms, have practices that do not compare favourably against international practice”.
“Lenders in these segments are more likely to have conflicts of interest, opaque fee and interest margin arrangements, inconsistent and non-independent valuation methodologies, and ambiguous terminology,” ASIC said.
“These practices are more prevalent in real estate–based funds. We have noted some improvement in practices over the past 12 months, as international managers have invested into local managers.”
The ASIC report assessment said that investors in private credit are mostly appropriately rewarded for “taking sub-investment grade credit risk and maturity/liquidity risk”.
“However, these risks are not always adequately described in offer documents and subsequent performance reporting,” it said.
“While we have not assessed the systemic risk to the Australian financial system from private credit, we note the concentration in real estate construction and development finance, which has represented the majority of credit losses in past economic downturns in Australia and overseas.
“This segment of the market may present as a systemic risk for small and self- managed superannuation funds and ‘sophisticated’ investors in a downturn,” the ASIC assessment said.
“The concentration of Australia’s private credit market in higher-risk real estate construction and development is where we see the greatest area for improvement for investor protection and market integrity,” the report said. “This market segment has a higher concentration of investors using the wholesale sophisticated investor exemption, and with less transparency on conflicts of interest, manager remuneration disclosure, and valuations and portfolio reporting.”
house of cards. Amazes me how people willing hand over their money to these credit providers who offer fin products with poor to no liquidity. Talk about them being hotel California’s – easy to check in and hard to check out. I wonder how long it will take for La Trobe to suspend redemption’s???
@Andy Semple,
Have you done your search on the Latrobe credit fund.
My understanding is that the Fund is supported by the 4 largest Australian domestic banks.
Which probably explains why the “Fund” has been the top performing credit fund for more than 15 years through a number of business cycles.
It’s a shame that ASIC didn’t do the same level of vigilance on LM Mortgage Fund, MFS Mortgage Fund and any number of other mortgage funds emanating out of Qld prior to the GFC that no longer exist that had serious doubtful lending and investment practices.
In my opinion, most credit funds behave like a “debenture! ”
High return usually means high risk without any guarantee of a return of capital.
the “only” liquid option they offer is LF1 which is offers a 3.25% rate above the spot RBA cash rate. They offer a variety of other non-listed products. I see no reference to the big 4 supporting them. you are 100% spot on to mention those similar credit funds who failed during the GFC. La Trobe Financial’s Australian Credit Fund (the underlying vehicle for the 2-Year Investment Account which is currently suspended) invests investor money into a diversified portfolio of secured loans, with a heavy emphasis on real estate and property developments. This includes:
As of early 2025, their loan portfolio breakdown shows about 49% in near-prime commercial and residential property loans, 23% in prime mortgages, 15% in super-prime residential, and 9% in specialist residential—making it one of Australia’s largest real estate private credit platforms…
When everyone runs for the exits at the same time, this always happens….you would think that people would learn over time, but they don’t. Liquidity remains the sole and undisputed heavyweight champion of the financial world
ASIC are you going to regulate these MIS or just wait for them to blow up and then blame Financial Advisers and make Advisers pay via CSLR.
ASIC are worse than the fire department. At least the Fire Department will put the fire out if your house is on fire. ASIC ignore any measures to prevent the fire from starting and should it catch on fire they don’t have any means to put it out. they just search through the burnt leftovers and largely blame financial advisers for their ‘poor’ investment decisions.