Private credit: a roadmap for a confident and informed sector

Today, ASIC has released its report, Advancing Australia’s evolving capital markets: Discussion paper response, which responds to its discussion paper released earlier this year and outlines a roadmap to tackle emerging risks and unlock the opportunities from our public and private markets.

The report underscores the role private credit is playing in Australia’s financial system and sets out clear principles, grounded in law, for the private credit sector and wider private markets industry to lift their practices. These provide a clear basis for private credit – and the wider private markets sector - to assess their practices, improve and build trust and confidence.

Australia’s private credit sector alone is estimated to be around $200 billion. With its flexible funding, diversification, and yield options, it plays an increasingly significant role in our economy. And it is growing at a rapid pace.

When done well, private markets benefit those seeking capital, investors and borrowers and the wider economy. The rising appetite for exposure by retail investors underscores the need for this market to be well-functioning, resilient and one that is underpinned by fair and consistent conduct and disclosure.

Distinguishing Australia’s private credit sector is its concentration in real estate, an element that touches most Australians, as is the role of superannuation as a structural driver of growth across our private markets.

However, at current volumes, private credit is untested in a stress scenario – and we are already seeing wide variance in practices across the sector. In short, we need to learn from past crises and act now to promote enhance practices and build preparedness for a market stress scenario.

We want participants to comply with existing financial services laws. To assist the private credit fund sector comply with its obligations, in addition to the principles we’ve issued, we outline examples of better and poorer practices in our accompanying private credit surveillance report, also released today.

Our surveillance found that while the private credit sector is rapidly growing, it is still relatively immature. Crucially, some parts of the sector lack well-established practices in key areas such as governance, transparency, fees and treatment of net interest margins, valuation methodologies and management of liquidity and credit.

As part of ASIC’s work on private markets, we have outlined plans to issue a catalogue, summarising legal obligations and related guidance to assist fund managers. We will also engage with industry bodies on lift private credit sector practices.

Further surveillance and enforcement action will also be undertaken to ensure compliance with the law.

Access to timely and accurate information will be vital. ASIC currently lags behind its international peers with regards to the data we can access, and the breadth and frequency needed for better supervision of private capital funds.

To increase transparency and better measure market integrity, ASIC is repeating its call for data reporting law reform on managed investment schemes.

While we will continue to make better use of the data available to us, we will engage with industry and data gathering agencies to conduct a pilot to test the feasibility of enhanced data reporting.

This pilot will help to gauge baseline data needs across the sector and inform reform options for ongoing data collection and information-sharing between government bodies.

For our private markets to grow sustainably, we want to act now to support confident and informed participation, lift practices and help avoid history repeating itself. 

Our roadmap sets out a way to achieve this – a future with strong foundations from which our markets will grow.