Regulator warns enforcement action coming for funds that fall short as credit stress builds across the sector
Australia's booming private credit sector is facing its most demanding regulatory moment since the asset class emerged as a mainstream investment option, with the Australian Securities and Investments Commission (ASIC) putting funds on notice that their 30 June 2026 valuations must reflect genuine economic conditions – not pre-stress assumptions.
In a statement published on Thursday, ASIC warned that tighter liquidity, emerging borrower stress and signs of credit deterioration “are testing valuations, governance and investor disclosures”.
The regulator conducted an eight-week voluntary survey earlier this year, when it collected responses from 22 managers covering 52 funds and approximately $76 billion in assets under management.
The picture that emerged was of a sector entering a more demanding phase after years of rapid growth.
Credit stress building unevenly
ASIC's early findings point to pockets of higher defaults, impairments and loan amendments, with macroeconomic pressures affecting borrower performance and softer investor inflows slowing growth.
In the property development segment specifically, ASIC warned that "current conditions may expose pressure through cost escalation, project delays, soft presales, unsold stock, and weaker refinancing conditions".
On portfolio concentration – one of the sector's more persistent structural vulnerabilities – ASIC noted that "some portfolios have a higher exposure to a single developer group or related assets" and that "management of this risk is not mature in parts of the domestic market”.
ASIC also flagged growing retail investor exposure as a concern, noting that "recent isolated incidents have highlighted how Australian retail investors can be exposed to offshore redemption constraints and liquidity pressures through local feeder funds”.
For mortgage brokers working with property developers and non-bank lenders, the tightening regulatory environment has real implications.
Private credit accounts for an estimated 4.2% of commercial lending and 26% of residential development lending in Australia, with CBRE forecasting the sector will grow from approximately $50 billion to $90 billion by 2029.
Funds forced to lift governance and risk management standards may become more selective, with tighter credit policies and potentially reduced capital flows to certain development types.
La Trobe and the stop orders that signalled a turning point
In September 2025, ASIC issued interim stop orders against three La Trobe Financial products – the 12 Month Term Account and 2 Year Account under the La Trobe Australian Credit Fund, and the La Trobe US Private Credit Fund – in what was ASIC's first enforcement action against private credit funds following its retail surveillance program.
ASIC's concerns centred on target market determinations that suggested inappropriate levels of portfolio allocation given fund risks and failed to adequately specify investment timeframes for retail clients.
All three stop orders were revoked after La Trobe amended its target market determinations, including reducing the recommended allocation in the US Private Credit Fund from 35% to 10%.
La Trobe chief investment officer Chris Paton told investors the outcome "reflects our commitment to transparency, compliance and putting our investors at the heart of everything we do”.
RELI Capital Mortgage and TruePillars Investment Trust also received stop orders in the same period, part of what ASIC has described as an active enforcement sweep across the sector.
The message ahead of 30 June
Heading into the new financial year, ASIC warned market participants not to wait for formal defaults before reassessing asset values and related risks. The regulator confirmed that active surveillances across wholesale and retail funds are well progressed and multiple enforcement investigations are underway.
"Poor practices in private credit remain a 2026 enforcement priority, and ASIC will act where conduct falls short," the regulator said. "These obligations cannot be outsourced.”
