Australia’s corporate regulator calls out ‘poor practices’ in private credit

The Australian Securities and Investments Commission (ASIC) has warned it may take enforcement action against firms in the booming private credit sector due to poor practices, including unrealistic valuations, opaque fees, and other issues. The sector's rapid growth and complexity have outpaced industry standards, according to ASIC Commissioner Simone Constant, who noted the recent collapse of property developer Bathla as indicative of the problem.

Constant emphasized that the regulator has been conducting increased scrutiny of the industry for 18 months and that the tide of poor private credit practices is imminent. She highlighted ongoing concerns around valuations, liquidity, governance, conflicts, and transparency, with the regulator estimating the private credit sector to be worth approximately A$200 billion (US$142 billion) in Australia.

Much of this lending is tied to real estate, which is highly susceptible to inflation, cost increases, project delays, and unrealistic asset valuations. Constant stressed that fund managers must make tough decisions when loans deteriorate, prioritizing the health of their portfolios over protecting fees or maintaining appearances.

The collapse of Bathla, which owed A$3 billion to over 40 lenders, further underscores the importance of strong governance, effective oversight, clear disclosure, and accurate valuations in the sector.