The evolution of valuations in private credit: Australia’s path to best practice

Summary

• Valuations are fundamental to investor confidence in private credit, yet judgement plays a meaningful role, and they may be complex. The methodologies used to value a private loan to an airport will likely be different to the methodologies used to value a private loan to a distressed property development or a performing operating company.

• Offshore markets, particularly the US and UK, have laid out well-established frameworks to guide valuation practices in private markets. These offer valuable models for Australia to draw upon.

• As the Australian private credit market expands, adopting global standards will support maturity, enhance trust, and provide the discipline required for continued institutional capital flows. ASIC is contributing to this evolution through consultation with the industry.

Regulatory focus in Australia: A constructive dialogue

The Australian Securities and Investments Commission (ASIC) has released a discussion paper titled Australia’s Evolving Capital Markets, inviting feedback from market participants on how public and private capital markets are changing and how regulation can evolve to support both growth and resilience.

Rather than imposing restrictions, ASIC is seeking to better understand emerging market dynamics, including in private credit, and to explore whether there are opportunities to enhance transparency, data access, and valuation practices. 

ASIC acknowledges that Australia’s private credit market is growing from a low base, and while it is not currently systemically significant, its rapid evolution makes it a sector worthy of regulatory engagement.

This is a welcome approach: constructive, measured, and informed by global trends. The regulator’s intent is to support confident and informed market participation, not to stifle innovation.

Valuations matter in private credit

Unlike public markets, where daily trading provides real-time price signals, private credit valuations rely on structured internal processes, assumptions, and judgement. These valuations affect not only reported performance but also capital allocation, portfolio risk assessment, and ultimately investor trust.

In Australia’s growing private credit market, the spotlight on valuation is timely. Investors are asking: how is fair value determined? Are methodologies consistent across funds? What role does third-party input or benchmarking play?

While ratings may also be used in some private credit contexts, especially for institutional comparison or risk grading, they are distinct from valuation practices and should not be confused. Valuation sets the price; a rating assesses the creditworthiness of the borrower.

Global evolution offers a roadmap

In more mature markets such as the US and Europe, valuation methodologies have evolved to meet the expectations of institutional investors, regulators, and auditors. This includes the use of scenario analysis, credit models that incorporate macroeconomic drivers, and structured governance processes incorporating independent, third-party valuations.

In the US, listed Business Development Companies (BDCs, which collectively manage over USD 250 billion) have long been required by the SEC to disclose asset valuations quarterly in a standardised, transparent format. This model offers a scalable, auditable framework well suited to other forms of private credit investing.

Meanwhile, in the UK, the Financial Conduct Authority (FCA) recently conducted a comprehensive review of private market valuations. The FCA’s findings encouraged managers to improve internal governance, use external valuation expertise more consistently, and adopt clearer documentation practices to support investor confidence.

These offshore developments show that even in private illiquid markets, transparency and consistency can be delivered through well-designed systems and repeatable processes.

Australia’s valuation framework will evolve

There is a clear opportunity for Australia’s private credit ecosystem (regulators, fund managers, investors, and service providers) to align around valuation principles that enhance trust and reduce uncertainty. This doesn’t mean adopting offshore models wholesale but rather learning from the evolution of best practice globally and applying those lessons locally.

As capital flows into Australia’s private credit market continue to grow, and as the sector becomes more sophisticated, stronger valuation frameworks will underpin its credibility. Institutional investors will demand it. Regulators will encourage it. And managers who lead on it will be more competitive.

What’s next?

In our next credit assessment, we will explore the practical tools available to Australian private credit managers to enhance valuation methodologies. This will include a hypothetical case study to illustrate the real-world implications of various valuation choices and oversight structures.

Concluding thought

Valuations in private credit are under scrutiny. Given the evolution of established private credit markets offshore, this is a natural development for this growing sector in Australia. It is also a welcome development for investors.