In remarks at an industry summit in Sydney, Australian Securities & Investments Commission Commissioner Simone Constant warned that private credit governance, controls and underwriting standards have not kept pace with the sector’s rapid growth. ASIC expects all participants to assess and improve their practices against its 10 principles for private credit, with boards and investment committees embedding them in decision-making. The warning sharpens ASIC’s continuing scrutiny of managed investment schemes and private credit as stress emerges in property-linked exposures. ASIC’s earlier surveillance of 28 private credit funds found limited borrower interest-rate disclosure, weak credit and default-management policies, inadequate separation between loan approval and valuation functions, and little liquidity stress testing among wholesale funds. These shortcomings are increasingly consequential because real estate lending accounts for an estimated 40% to 60%, or potentially more, of Australian private credit. The Bathla collapse has reinforced concerns about complex structures and conflicts, involving AUD 3.4 billion from more than 40 lenders channelled through about 540 special purpose vehicles identified so far. Fund managers are expected to apply realistic, independent valuations, write down distressed loans where appropriate, address liquidity mismatches and disclose arrears, capitalised interest, developer exposures and redemption arrangements. Superannuation trustees and institutional investors should conduct look-through due diligence rather than rely on manager valuations, while valuers, auditors and ratings agencies should identify risks early and ensure assessments reflect current conditions. Multiple enforcement investigations and active surveillance of wholesale and retail funds are underway, with findings due in the coming months and a further pulse check planned on redemptions and valuation changes.

Original source