Private Credit’s Transparency Test: ASIC’s Findings Reveal Growing Pains in a $224 Billion Market

Australia’s booming private credit market has hit an inflection point. A new review by the Australian Securities and Investments Commission (ASIC) has pulled back the curtain on a sector long admired for its flexibility and yield but now facing questions about transparency, governance, and the true health of its loan books.

A Market Growing Too Fast to Track

Private credit — direct lending by non-bank institutions to corporates and property developers — has expanded at a staggering rate. According to new data from Alvarez & Marsal, total exposure jumped 9% in the past year to reach $224 billion, more than five times its size a decade ago. That makes it roughly comparable to Australia’s $230 billion small business loan market — but without the same regulatory oversight.

For fund managers, the appeal is obvious: high interest margins, diversified risk, and investor demand for alternatives as the $43 billion bank hybrid market winds down. For regulators, however, it’s a growing blind spot.

ASIC’s chair, Joe Longo, summed it up bluntly: “Private credit at current volumes is untested in a stress scenario.” The concern is that, in a downturn, these opaque loans could become the next flashpoint for financial contagion — especially as retail investors pile in through unlisted credit funds promising stable monthly yields.

The Surveillance Findings

ASIC’s review — covering 28 private credit funds between October 2024 and August 2025 — revealed that fewer than half had formal written policies for managing credit risk, impairments, or defaults. Of the eight wholesale funds examined, only two had performed any stress testing on their loan portfolios.

Perhaps more tellingly, just four funds disclosed their borrower interest rate ranges publicly, and only two retail funds reported both their earned interest and retained borrower fees. Transparency, in short, remains optional.

Fee practices were equally troubling. ASIC found that some fund managers retained up to 100% of borrower origination fees, and in several cases, even profited from penalty fees charged to borrowers in default. Effective governance separation between those approving loans and those monitoring them was largely absent.

Interest rates across the sample ranged from 2.5% to 41.7%, a span reflecting both diverse borrower quality and inconsistent pricing methodologies. The upper end, ASIC noted, reflected unsecured or distressed loans — but the lack of standardised disclosure makes it nearly impossible for investors to assess real risk-adjusted returns.

Retail Investors in the Crosshairs

Two retail-focused funds were singled out for using “strong and sometimes aggressive” marketing tactics to attract new investors — echoing patterns seen in the early stages of the mortgage trust boom pre-GFC. Many retail investors are drawn to these products for their advertised yields of 7–10% per annum, but ASIC’s findings raise doubts about whether those returns accurately reflect the underlying credit quality.

The regulator also criticised research houses for relying too heavily on fund-provided data, with limited ability to independently verify performance claims. That creates a feedback loop where funds self-report optimistic figures and analysts amplify them without challenge.

A Global Pattern of Strain

The Australian findings mirror emerging cracks overseas. In the US, the collapses of subprime auto lender Tricolor and parts supplier First Brands have exposed vulnerabilities in leveraged private lending. JPMorgan’s Jamie Dimon recently warned that more “cockroaches” will surface in the global private credit ecosystem — his way of saying that bad loans rarely appear in isolation.

Regulatory Response and Next Steps

ASIC’s upcoming guiding principles for the sector, due this week, will focus on three pillars:

1. Enhanced disclosure of total fees and borrower rates.

2. Mandatory stress testing and early warning protocols for borrower distress.

3. Independent asset valuation using consistent methodologies.

If these sound familiar, it’s because they echo reforms that followed the managed investment scheme collapses of the 2000s — from Westpoint to Timbercorp. The lesson appears to be that opacity plus yield often equals trouble.

ASIC also plans to pilot new data reporting standards for managed investment schemes in 2026–27, designed to feed more accurate fund performance and asset-level data into regulatory systems. In the interim, surveillance will continue.

The Numbers Beneath the Headline

To put ASIC’s findings into perspective:

Where the Data Leads

A broader data analysis of private credit globally (using Preqin and BIS datasets) suggests that loan loss rates typically average 1.2–1.5% per annum in benign conditions, but spike to 4–6% under stress scenarios. If Australia’s private credit portfolios are indeed under-reporting impairments, even a mild economic slowdown could see billions in losses crystallised across unlisted funds — especially those with retail exposure.

The Outlook

Private credit remains a critical piece of the funding puzzle for mid-market corporates, property projects, and acquisitions. But ASIC’s review underscores that rapid growth without transparency is a risk in itself.

If the sector embraces the regulator’s call for consistent governance and honest disclosure, it can mature into a stable, long-term capital source. If it doesn’t, the next downturn may not just test private credit — it could define it.