Private credit under fire again, widespread failings persist

Private credit funds continue to lag in improving poor disclosure, distribution and conflict-management practices since ASIC handed down its scathing inaugural report into the opaque sector 12 months ago.

A new ASIC investigation finds complex, multi-layered private credit funds are not only masking underlying assets but also exposing investors to heightened risks from poorly disclosed and managed structures and related-party arrangements - similar themes that emerged from the regulator's first deep dive into private credit.

A fresh review into 24 private credit funds targeting retail and wholesale funds with a combined $18 billion in assets found the risks associated with private credit investing are no longer isolated to institutional and rich investors.

Given the scale private credit has reached, ASIC is worried the harm to retail investors and superannuation funds has the potential to "damage general market confidence and cause harm to sectors of firms and consumers."

Report 846: Private Credit Funds: Do investors know what they are getting? states too many providers withheld important information from investors. This ranged from disclosing sufficient visibility over fees, economic benefits and incentives to preventing investors from understanding the risk-return trade off.

ASIC slammed providers for "prevalent" and "material shortcomings" in marketing, disclosure documents and target market determinations (TMDs).

"We observed there was often an inadequate explanation of product features, liquidity constraints, underlying assets, fund structures, fees and conflicts," Report 846 reads.

"Investors are distributed products without the benefit of disclosures to help them clearly understand what they are investing in and what risk they are taking."

Financial advisers, meanwhile, demonstrated they acted in the best interests of their clients when recommending private credit funds to clients. This was in the context of private credit exposure comprising a modest part of clients' portfolios and forming part of a diversified fixed-income allocation.

Among the few that were not compliant, ASIC observed these advisers prioritised their own interests, recommending high allocations of a client's investable assets to single private credit funds. Some fund operators had financial incentive arrangements with the financial advice licensee, that may have incentivised advisers to make certain recommendations.

From November 2025 to August 2026, some of the funds ASIC reviewed included wholesale products from Apollo Asset Backed Credit Trust, GCI Real Estate Credit Fund and iPartners Property Credit Fund.

Retail funds included the Bentham Syndicated Loan Fund, Trilogy Monthly Income Trust and Skyring Fixed Income Fund. ASIC found nine of 12 retail funds failed to clearly explain key information for investor decision making, such as non-performing or distressed assets.

Ten out of 12 retail funds' TMD had settings ASIC considered "poorly designed," including broad or unclear risk ratings and inappropriate allocation recommendations.

In recent months, products issued by Fidante Partners and three from Remara Investment Management were slapped with interim stop orders for TMD deficiencies.

ASIC commissioner Simone Constant said: "While we have observed pockets of improvement, complexity and opacity persist, in some cases leaving investors unable to properly assess the risks and benefits of their investments."

"ASIC has made clear what good practice looks like by providing industry with significant guidance, including our ten principles of private credit done well. Our focus now will be on holding the sector accountable for persistent poor practices."

Going forward, ASIC flagged increased scrutiny into the sector, soon releasing updated regulatory guides for managed funds to reflect additional requirements for private credit strategies.

It will also further engage with industry bodies on stronger standards across retail and wholesale funds. This will involve the broader private credit sector, including responsible entities, wholesale trustees, investment managers, distributors, financial advisers, valuers and auditors.

"ASIC is encouraged by some industry efforts to lift practices and develop standards. What matters now is that those standards are adopted and embedded across the sector," said Constant.

"It is past time for the sector to embrace its role as good stewards of other people's money, which means being clear and transparent about risks, fees and conflicts. It is time now for urgent action from all involved in the private credit system."