Investors ‘should not need forensic skills to understand how a fund operates’ says ASIC commissioner
Australia's private credit sector is still leaving many investors unable to see the fees, conflicts and risks attached to their money, the Australian Securities and Investments Commission (ASIC) has warned, after its second major surveillance found most of the failings it flagged a year ago remain.
Between November 2025 and August 2026, the regulator reviewed 24 retail and wholesale private credit funds with a combined $18 billion in assets under management, alongside 46 pieces of personal financial advice given to retail clients by 19 advisers.
The findings are set out in Report 846 Private credit funds: Do investors know what they're getting? (REP 846).
Private credit has grown well beyond its institutional roots. Citing estimates reported by The Australian Financial Review, REP 846 puts loans issued by private credit lenders at more than $250 billion in 2026, with retail exposure growing through direct investment and superannuation.
ASIC Commissioner Simone Constant said that practices had not improved in line with the sector's growth, pointing to the six interim stop orders ASIC has issued since September.
"Investors should not need forensic skills to understand how a fund operates," Constant said. She added that some pockets of the market now run more special purpose vehicles (SPVs) within a group than employees managing investors' money – making meaningful disclosure of risk close to impossible.
Private credit fee disclosure leaves investors short
Only two of the 22 funds ASIC assessed on fees passed the full economic benefit of interest and borrower fees through to investors. Retained interest margins reached as high as 5.6% across the total loan book for retail funds and 5.9% for wholesale funds.
In the starkest case, a related-party lender kept undisclosed borrower fees, interest margin and default interest worth more than four times the fund's disclosed management costs. That equated to 38 cents for every $1 distributed to investors in the 2025 calendar year.
Two retail mortgage funds – the TPT Select Mortgage Fund and the Murdoch Clarke Mortgage Fund – did not disclose to investors that establishment fees were retained. ASIC stressed, however, that keeping borrower fees is not itself unlawful, and that its observations should not be read as findings of non-compliance with disclosure law.
Complexity compounded the problem. Eighteen of the 24 funds used multiple layers of intermediary entities, from SPVs to fund-of-funds and warehouse vehicles, and one fund shifted around 17% of its assets to related funds in a single year without full disclosure.
Retail marketing and financial advice under the microscope
Nine of the 12 retail funds failed to clearly disclose key information on underlying assets, structures or risks. Ten had target market determinations (TMDs) – the documents setting out who a product is designed for – that ASIC considered poorly designed, including broad risk ratings and inappropriate allocation recommendations.
Some funds leaned on banking language such as "savings account" and "at call" in marketing or search keywords, which ASIC warned could lead investors to treat private credit like a bank deposit. One fund promoted round-the-clock access to investors' money when that was not the case, while two retail funds reported loan default rates of 18% and 25% with little or no explanation in their disclosure.
On advice, ASIC found most advisers acted in their clients' best interests where private credit was a modest part of a diversified portfolio. But 88% of advice files recommending allocations above 20% failed to demonstrate compliance with the best interests duty, and one adviser recommended putting 87% of a client's portfolio into a single fund.
One case study will resonate with mortgage brokers. A conservative client in her late 50s, holding a settlement payout she intended to use to buy a home, was advised to place half of her available funds in a single private credit fund.
How did private credit reach this point?
REP 846 caps a year of mounting regulatory pressure. ASIC's first review of 28 private credit funds estimated the sector accounted for 4.2% of commercial lending and 26% of residential development lending, and that fees, margins and conflicts would be the regulator's 2026 focus.
In January 2026, ASIC warned that retail investors were accessing opaque private credit products at entry points of around $2,000, including through superannuation platforms. By June, it had put the booming private credit sector on notice ahead of 30 June valuations, citing tighter liquidity, borrower stress and early signs of credit deterioration.
A month later, a Reserve Bank of Australia (RBA) memo expected private credit defaults to keep rising through 2026, given funds' concentrated exposure to real estate and construction.
Enforcement then accelerated. In October, ASIC halted offers in three Australian Secure Capital Fund mortgage funds holding $251.8 million, before freezing new investment in a Tasmanian mortgage fund worth more than half a billion dollars. Both orders have since been revoked after the managers amended their product disclosure statements, according to REP 846.
What comes next for private credit funds
Poor private credit practices remain a 2026–27 enforcement priority, with several well-progressed investigations underway and multiple matters from this surveillance referred for further investigation.
ASIC plans to consult in early 2027 on refreshed fund guidance, including extending Regulatory Guide 45 – which currently covers mortgage schemes – to all private credit funds. It is also pressing for recurring data collection powers over managed investment schemes, on which Treasury released a consultation paper on 23 September 2026.
Constant welcomed industry work on standards, including the Financial Services Council's private markets standards released in August 2026, but said what mattered now was that they were adopted and embedded across the sector. ASIC has also updated Moneysmart's guide to how private credit investments work for consumers weighing a direct investment.
