FSC raises the bar for PC managers with fresh standards

The Financial Services Council (FSC) has released a new standard and guidance note for members on private markets, with a special focus allocated for private credit managers.

Both the FSC Standard No. 30: Private Markets Best Practice Principles (mandatory) and the FSC Guidance Note No. 57: Private Markets Best Practice Guidance (voluntary) will come into effect on 1 July 2027.

The standard sets expectations across governance and accountability, valuations, liquidity and leverage, conflicts of interest, fee and income transparency and investor disclosure.

Once effective, FSC members under the criteria will be required to consistently apply valuation policies that include independence and effect challenges, and execute a clear re-valuation when material market events occur.

Specifically for private credit managers, the FSC expects them to use clear, consistent terminology for key indicators such as arrears, defaults, impairments, watchlist exposure and loan-to-value ratios for investors.

They also need to be equipped with "good governance" of credit risks and escalate governance around "deteriorating" credit exposures on a timely basis.

Meanwhile, the supporting guidance note is a voluntary measure for members but provides practical considerations and examples where managers can meet the expectations in the standard.

"It is intended to support implementation that reflects the specific circumstances of a private markets manager's private markets activities, including the nature, scale, complexity, investor base, structure, risk profile, role, level of control and information rights of the private markets manager," the guidance said.

However, it does not create additional mandatory obligations. Private markets managers may adopt different approaches to those described in the guidance note where those approaches are consistent with the objectives of FSC Standard 30.

These examples include clear explanations on lower valuation frequency from a quarterly frequency, using defined triggers to reassess valuations following unexpected events, model definitions for key private credit metrics.

The document also noted good practice involves transparent reporting of manager remuneration and advise how to better apply independent oversight across related-party lending, cross-fund transactions, asset transfers and special purpose vehicle arrangements where conflict risk is elevated.

FSC chief executive Blake Briggs said the new standard should not be treated a 'set-and-forget' exercise and the body will continually review the sector as supervisory concerns arise.

"The FSC's new standard and guidance note for private markets and private credit set out a clear framework for good industry practice, supporting greater consistency, transparency and confidence in the sector," Briggs said.

"The FSC recognises that rapid growth in the private markets sector has created inconsistent practices, which creates risk for consumers, however industry adherence to the Standard will reduce these risks.

"The FSC's industry standard will be mandatory for funds management and superannuation members but will also be a publicly available resource for all market participations."

He encouraged all fund managers and super funds to apply the measures in their businesses as soon as applicable, and for ratings agencies to consider the principles when they are rating investment and private credit products.

"The FSC acknowledges ASIC's ongoing supervisory work and its collaborative approach to uplifting private credit sector practices," Briggs continued.

"The FSC and our members have responded in good faith to ASIC's call for enhanced industry standards, to help address the legitimate concerns ASIC and the Reserve Bank of Australia have towards the private credit market."

The standard and guidance were developed in collaboration with leading domestic and global private market operators and super funds, where the standard will be mandatory for FSC's fund management and super fund members.

Challenger, an FSC member, noted as the private markets continue to grow, industry practices will need to keep pace.

"We've worked closely with the FSC on the development of its private markets standard and guidance note and believe greater consistency around governance, valuation and disclosure will strengthen confidence in the sector," Challenger executive general manager Victor Rodriguez said.

"Clear standards provide investors with greater transparency and confidence in how their capital is managed, while supporting the sustainable development of private markets over the long term."