Australia’s Securities Regulator Flags Persistent Problems in Private Credit Funds

Australia’s corporate regulator says persistent problems with private-credit fund disclosure and governance are leaving investors unable to judge some of the risks attached to their money. The Australian Securities and Investments Commission (ASIC) reached that conclusion after examining 24 retail and wholesale funds holding a combined A$18 billion in assets under management.

The findings, released November 10, extend concerns ASIC raised a year earlier. Its new review identified incomplete fee information, complicated arrangements involving related parties and weaknesses in the way investment products are presented to retail clients. The regulator has also issued interim stop orders and referred matters for further enforcement investigation.

ASIC’s work covered the period from November 2025 through August 2026 and included a sample of personal financial advice about private credit. It was a surveillance exercise involving selected funds, not a finding that every private-credit manager in Australia has the same shortcomings. The distinction matters as lending by nonbank investment funds becomes accessible to a broader group of investors.

Layered structures and fees complicate investor scrutiny

In its November 10 findings, ASIC said 18 of the 24 funds reviewed used several layers of intermediary entities. Those arrangements included special purpose vehicles, fund-of-funds structures and vehicles used to warehouse investments. Such structures can serve legitimate financing or operational purposes, but the regulator found that some managers did not clearly explain how they worked or what they meant for investors.

The arrangements can also affect what investors see when assessing the assets behind a fund’s advertised return. In a private-credit portfolio, the underlying loans may be held through entities rather than directly by the fund that accepts investors’ money. If the structure is poorly explained, a reader of the disclosure documents may struggle to determine who owns the loans, how money moves among related entities or where a potential conflict arises.

ASIC found that 10 of the 12 wholesale funds used special purpose vehicles as a material feature of their structures, compared with three of the 12 retail funds. The number of such vehicles used across the life of individual funds ranged from none to more than 500, depending on the size and nature of their portfolios. The figure is a measure of structural complexity, not evidence that a large number of vehicles is itself unlawful.

Related-party dealings received particular attention. The regulator identified two examples in which around 17% and 15%, respectively, of a fund’s assets moved between related funds in a single year without full disclosure to investors. Transfers within a management group can change a portfolio’s exposures, making clear information about the terms and parties involved important to an assessment of fund governance.

Fee arrangements were another recurring weakness. Only two of 22 funds assessed on that measure passed on the full economic benefits of interest and borrower fees to investors, ASIC said. In one fund, amounts retained by a related-party lender through borrower fees, interest margins and default interest exceeded four times the disclosed management costs. ASIC calculated that the related party received 38 cents for each dollar distributed to investors during the period examined.

A manager retaining an origination fee is not automatically proof of misconduct. The question is whether the arrangement and its financial effect are properly disclosed and managed. ASIC found seven of 10 retail funds and nine of 12 wholesale funds assessed retained establishment or origination fees paid by borrowers, while two funds did not disclose that practice to investors. That gap makes it harder to compare the economic return available to an investor with the revenue earned elsewhere in the management structure.

Retail investors face gaps in risk information and advice

ASIC’s concerns extended beyond fees to the information people receive before choosing a fund. Nine of the 12 retail funds reviewed did not clearly explain important matters such as the underlying assets, investment structures or associated risks. Information about loans that are non-performing or distressed was among the details the regulator said investors need to understand when deciding whether a product suits them.

Liquidity is another point of potential confusion in private credit. A fund may lend against assets that cannot be sold quickly, even when investors are presented with withdrawal arrangements or marketing material that suggests ready access to cash. The regulator found that promotional materials for three retail funds overemphasised returns, stability, liquidity or the preservation of capital. Those findings concern the way products were promoted; they do not establish that the funds necessarily failed to meet withdrawal requests.

The review also found that 10 of 12 retail funds had target market determinations ASIC regarded as poorly designed. These documents are intended to identify the types of consumers for whom a financial product is appropriate. Broad risk descriptions or unsuitable allocation guidance can weaken that screening process, particularly where the fund’s loans, valuations and withdrawal terms are difficult for investors to evaluate independently.

Financial advisers were examined separately. ASIC said most of the advice files it reviewed demonstrated compliance with legal obligations, but problems were more common when clients were directed toward substantial concentrations in a single private-credit fund. Among the files recommending that more than 20% of a portfolio be allocated to private-credit funds, 88% failed to demonstrate compliance with the best interests duty. The largest allocation recommended to one fund in the sample was 87% of a portfolio.

Those figures describe the files ASIC inspected, not the share of all financial advice across Australia that fails the legal standard. The concentration finding is especially important because losses in one fund could affect a large share of a client’s investments. A portfolio with a large exposure to one private-credit fund can depend heavily on that manager’s lending decisions and valuations, and problems may be difficult to assess if detailed information about the underlying loans is missing.

Six stop orders and more scrutiny of fund managers

ASIC said the review led to six interim stop orders issued since September, along with multiple referrals for enforcement investigation. The stop orders covered private-credit products associated with Fidante Partners, Australian Secure Capital Fund, Melbourne Securities Corporation and Murdoch Clarke Mortgage Management. According to ASIC, those six orders were lifted after the identified problems were promptly addressed. A lifted interim order should not be confused with a finding that wider market concerns have disappeared.

Commissioner Simone Constant said the regulator had seen some improvement but continued to encounter opaque structures and poor information for investors. Her criticism focused on a basic expectation: people supplying capital should be able to understand the risks, fees and conflicts attached to an investment. ASIC is now emphasizing accountability rather than simply repeating guidance about what good conduct should look like.

The findings build on ASIC’s earlier surveillance of private credit in 2025, when it raised questions about governance, valuation, disclosure and conflicts management. The new report suggests those issues remain relevant even after the regulator published principles for better practice and provided industry guidance. ASIC also acknowledged that some managers and industry groups have taken steps to improve standards, but said effective adoption across the sector is still necessary.

Private credit has an established role in financing businesses and property projects outside conventional bank lending. That can create investment opportunities, but returns must be assessed alongside the quality of the underlying loans, the scope for losses and the conditions governing withdrawals. ASIC’s review highlights how difficult that assessment becomes when fees are spread across related entities or key portfolio information is not presented clearly.

ASIC plans to refresh regulatory guidance for managed funds operating private-credit strategies and continue engaging with industry groups on stronger standards. Its work also covers the parties around fund managers, including trustees, distributors, advisers, valuers and auditors. Further investigations may lead to separate regulatory action, but the review itself does not determine the outcome of those cases.