Private Credit – ASIC raises the bar

Financial Newswire Contributor

23 March 2026

JANA’s Robert Moore and Michael Karagianis point to the changing landscape around private credit being driven by the ASIC review raising the stakes on transparency and investor education.

ASIC’s review into private credit has crystallised issues building across the asset class. Rather than cooling demand, it is likely to accelerate the conversation around stronger governance structures, clearer terminology, and improved disclosures and investor understanding risk, fees and liquidity.

A market under greater scrutiny

Private Credit remains an attractive and growing asset class. But as the asset class has broadened to include investors outside of large institutions, governance, risk and cost issues have bubbled up to the surface. Overseas, such issues have exploded into the headlines, with many listed and unlisted private credit vehicles seeing volatility, poor performance, and lately a wave of redemptions.

Despite this, private credit remains in high demand in the wealth market, and while the opportunity remains attractive, the issues overseas – and ASIC’s attempt to get ahead of them in Australia – are warnings that improvements need to be made; both on the manager side (governance, transparency, fees, etc) and the investor side of understanding the complexities and risk (including liquidity) and return characteristics.

ASIC’s Core Concern #1: Fees, Conflicts & Governance

ASIC’s review found widespread conflicts where fund managers’ financial incentives diverged from investors’ interest. Fee levels and structures are the starkest example of this, with misleading ‘headline fee’ disclosures masking material levels of other types of manager fees, including borrower-paid origination fees, extension fees and default-related fees. In some cases, the true cost to investors was 3-5 times the advertised ‘headline’ management fee. Further, opaque disclosure of such fee structures and levels implies that there is a great risk that many investors – both at the organisational level and at the client level – are unaware of the true cost of their investments.

ASIC also pointed to conflicts of interest in manager product offerings. With managers growing in size, increasingly they are running ‘parallel’ strategy types, such as Senior Loan funds, subordinated loan funds, and equity funds. ASIC highlighted the shifting of loans between funds without independent oversight as a key concern.

JANA agrees with ASIC’s stance here, with a strong preference for borrower fees (origination, restructuring, etc.) to flow through to fund investors rather than be retained by managers. Some partial borrower fee retention can still be acceptable but only if there is:

• Full transparency and investor understanding of the fee structure, and
• The total fee load is still reasonable and competitive.

On conflicts of interest and governance, JANA has long advocated that conflicts of interest should be avoided, and where they can’t be, managed through robust and independent processes as part of a strong governance structure. Some conflicts can arise in domestic and global private credit – such as asset sales between funds within the same manager, or different funds owning different parts of a company’s capital structure – but in almost all cases there are robust and independent processes to mitigate the impacts, and governance structures that address the conflict.

ASIC’s Core Concern #2: Valuation & Liquidity

Valuation clarity is critical. Unlike public markets, private credit valuations are typically less sensitive to short-term movements, with loans generally carried at or near par and held on a hold-to-maturity basis, unless there is evidence of impairment. Transparency around valuation methodology, review frequency and impairment triggers is therefore important.

Valuing private assets under stress can be contentious. Without a public ‘market price’ and given the esoteric nature of loans, determining a fair value for a company under financial stress is difficult. This is not a flaw in private credit markets, but rather a feature of their private nature and the uniqueness of each individual loan. Investors (and regulators) must recognise this reality.

Liquidity issues, and the mismatch between investor expectations and reality, are a key concern. Central to ASIC’s focus is the ease with which retail investors can now access private credit investments, often through ASX-listed investment vehicles. These structures introduce the potential for liquidity mismatches, where investor expectations – driven by the ability to trade on an exchange – may not align with the nature of the underlying loans.

This misalignment has exploded into the headlines overseas, with traded “private credit” vehicles such as Business Development Companies – a form of closed end credit fund in listed or unlisted forms – in the US under intensive scrutiny following a period of high volatility, poor returns, and a wave of redemptions.

Even in Australia we have seen the advent of “private credit” funds being listed on the ASX, with managers promoting these as “all the benefits of private credit, but in a daily liquid form”. The access that many of these newer structures offer comes with a trade-off – something that newer cohorts of investors need to understand. Listed and other exchange-style private market vehicles may provide day-to-day tradability and meet the regulatory definition of “liquid”, but the economic liquidity can be very different from public credit. Further, the price volatility of these products can materially pollute one of the key advantages that price credit should offer investors – stable valuations and therefore low volatility.

Investors should be prepared to invest patient capital in private credit. For wealth investors in particular, understanding the structure, redemption mechanics and potential divergence between market price and portfolio value is as important as assessing the underlying credit risk.

Competitive pressure and rising dispersion

Competitive pressure among fund managers has heightened the need for selectivity. Strong inflows have driven spread compression across both public and private credit markets, with investor protections varying by segment and structure. Large-cap deals have moved close to public-market norms, whereas the core middle market still retains covenants and protections. As dispersion rises, understanding where a strategy sits along the lending spectrum and whether risk is priced appropriately matters more than ever.

In this environment, investors need to look beyond headline yields and assess the experience and underwriting strength of individual private credit fund managers, as well as the quality of their loan books. Understanding fee arrangements and determining whether the liquidity profile matches their objectives — especially between listed and unlisted vehicles — is crucial for assessing alignment and net returns. Manager dispersion remains significant, driven by sourcing quality, underwriting discipline and governance. Ultimately, successful private credit allocations now rely more on underwriting and governance quality than just yield, with greater emphasis on understanding risk, liquidity management and manager capability across cycles.

Implications for portfolio construction

The surge of new Private Credit vehicles has created a challenging environment for investors; building private credit exposure within a portfolio requires careful consideration, including:

1. Prioritise manager quality

Managers with long track records are more likely to access stronger deal flow, negotiate favourable terms and manage workouts if things go wrong. Experience is crucial in an asset class where underwriting discipline drives outcomes.

2. Seek genuine diversification

Domestic private credit is dominated by real estate exposure and multiple domestic strategies may create the perception of diversification but often result in concentrated exposure. International markets offer broader diversification.

3. Apply rigorous due diligence

Proper due diligence involves assessing lending strategy and operational due diligence, including across loan valuation, liquidity management, governance, and management of conflicts of interest. Specialist research and independent oversight are critical.

Private credit is still attractive — but the bar has been raised

In summary, too much manager choice in private credit can, in some ways, be more challenging than limited choice. The rapid expansion of manager strategies and structures increases the risk of implementation missteps for investors seeking to access to the opportunities the asset class presents. Private credit, in common with private equity, is likely to see a meaningful long-term dispersion between the average manager and those capable of delivering superior risk-adjusted returns. In a more competitive and more scrutinised market, outcomes will increasingly be driven by manager quality, underwriting discipline and governance standards.

Robert Moore (Head of Debt, JANA) and Michael Karagianis (Head of JANA Wealth, JANA)