Is Private Credit the Wild West of Finance? What Tighter Regulations Will Mean for CRE Investors

Private Credit Under Review: How New Regulations Could Impact Investors

---

Australia's private credit market has expanded rapidly, surging fivefold over the past decade to more than $200 billion. However, this growth has drawn increased scrutiny from the regulator. The Australian Securities and Investments Commission (ASIC) has signalled tighter oversight, warning that a lack of transparency, regulation, and uniform reporting standards could leave investors exposed. For commercial real estate (CRE) investors, understanding these developments is crucial to navigating an evolving investment landscape.

Regulatory Risks in a Rapidly Expanding Market

ASIC has highlighted that while private credit remains relatively stable, it has yet to be tested by a major economic downturn. The sector’s absence of standardised regulation leaves investors with varying levels of insight into underlying risks, particularly within CRE debt markets. Many private credit funds offer limited liquidity, making it difficult for investors to exit positions in times of financial stress. Given the sector’s increasing role in funding large-scale developments, concerns around risk management and investor protection are gaining prominence.

ASIC’s Areas of Focus: Key Changes on the Horizon

ASIC has outlined plans to increase its supervision of private credit funds, private equity funds, and their advisers this year. Key areas under review include:

• Governance and risk management frameworks to ensure adequate oversight of lending practices.

• Valuation methodologies and transparency to provide investors with greater clarity on asset pricing and fund performance.

• Conflict-of-interest policies to safeguard investor interests and ensure ethical management practices.

• Fair treatment of investors, particularly in fund structures with limited liquidity.

For retail private credit funds, ASIC will also assess compliance with disclosure and distribution obligations. The regulator has released a discussion paper to gather industry feedback, with updates expected later this year. ASIC Chair Joe Longo has emphasised the need for a balanced approach—one that supports private credit’s growth while mitigating risks. “Public and private markets support one another, and both are critical to our economy. It’s important we consider both the opportunities and risks,” Mr Longo said. “The critical point for ASIC is whether there is a need for interventions to address risk or adjustments to how regulation operates to take advantage of opportunities important for the attractiveness of our capital markets.”

What Investors Should Consider Moving Forward

As regulatory oversight intensifies, investors should take proactive steps to ensure alignment with evolving standards and risk profiles. Key considerations include:

• Due Diligence on Fund Managers: Investors should assess whether their private credit managers operate with robust governance frameworks, transparent valuation practices, and disciplined risk management processes.

• Portfolio Diversification: Given the potential for regulatory shifts to impact market dynamics, maintaining a well-balanced portfolio across various asset classes can help mitigate risk.

• Liquidity Considerations: Investors should evaluate their exposure to illiquid private credit structures and ensure they align with their long-term investment strategy.

ASIC’s heightened focus on private credit underscores the need for informed decision-making. By staying ahead of regulatory changes and prioritising risk-aware investment strategies, investors can better position themselves in an evolving market. If you would like to learn more or discuss these developments further, contact us.