'Clock is ticking' as ASIC warns private credit sector investors could bail

ASIC Commissioner Simone Constant has warned that the clock is ticking for the Australian private credit sector, as poor lending practices and a potential contagion risk loom. The collapse of NSW property developer Bathla has exposed the sector's vulnerability to financially unstable construction companies. While the sector's growth is impressive at 500 percent over the past decade, governance, controls, and underwriting standards have not kept pace.

ASIC has intensified its scrutiny of private credit, highlighting red flags such as poor valuation practices and ineffective disclosure. One estimate suggests that the sector has quadrupled globally, with more private equity funds in the US than McDonald's stores. However, Morgan Stanley recently curtailed redemptions at its $7 billion private credit fund as investors requested more than double the amount the fund was willing to repurchase.

The Reserve Bank of Australia's governor, Michele Bullock, indicated that Australian private credit risks are being contained, with no systemic issues identified. The next step for ASIC will be to enforce action on the sector if the stress fractures continue to emerge.