The fee spread question ASIC is asking — and private credit investors should too

In March this year, ASIC sent a questionnaire to private credit fund managers requesting data on a range of metrics. It was the latest move in a surveillance program that produced REP 820 in November 2025.

The REP 820 findings were pointed. Only four of the 28 funds published the rates charged to borrowers, and one manager was earning a margin of 7.5% that in ASIC's view should have flowed to investors.

ASIC has flagged fees, margin structures, and conflicts of interest as explicit priorities for 2026. The industry would be wise to pay attention.

1.  The spread

Every private credit fund has a gap between the gross interest rate charged to borrowers and the net return delivered to investors – the “spread”. 

Some gap is expected. All of it should be explainable.

A private credit fund is essentially a pass-through vehicle.

The gross rate is what goes in the top. The net return is what comes out the bottom. 

The difference or spread covers the cost of running the fund and compensates the manager.

In a well-run fund, that spread is modest and disclosed. In a poorly structured one, it can be substantial, opaque, and the source of a conflict of interest between the manager and investor.

The simplest way to illustrate the issue is to start at the bottom and work upward. 

Let’s fix a hypothetical investor return at 9.5% and ask: what gross rate does a fund need to charge borrowers to deliver that outcome? The answer depends on what sits in the spread.

Scenario A | Transparent, investor-aligned fund

Fund A starts with 9.5% and adds only what is necessary. 

• Fund operating costs | trustee fees, fund administration, audit accruals (+0.5%)
• Management Fee | disclosed cost of the manager (+1.5%)

Fund A needs to have priced its debt at 11.5% to deliver its investors a 9.5% return. Importantly, the 9.5% investor return reflects the substantial majority of the risk priced at 11.5%. The manager earns 1.5% per year for running the book. 

Scenario B | Opaque fee disclosures

Fund B also delivers investors a 9.5% return. 

Same fund operating costs and disclosed Management Fee.

BUT...Fund B's manager also charges borrowers a 4% establishment fee at loan origination that it keeps.

To support all of those costs, Fund B needs to charge its borrower 15.5%.

A borrower paying 15.5% is a materially different credit proposition to one paying 11.5%.

While that rate reflects a meaningfully higher credit risk, the Fund B investor is uncompensated.

Both funds look identical in the return column. The difference shows up in the risk column, the column most investors never see.

The fee structure in Fund B has transferred 4% of credit risk from the manager's income statement onto the investor's balance sheet - without disclosure or compensation.

Two funds. Same return. Very different risk.

2. The misalignment

The upfront fee structure in Scenario B creates a conflict that goes beyond disclosure.

The manager has no capital at risk. On a $1 million loan, a 4% establishment fee is $40,000 in Day 1 income, paid before the investor has received a dollar and before the borrower has made  (or missed!) a single repayment. 

The incentive this creates for an unscrupulous manager is not subtle.

Write the loan, collect the fee, move to the next one.

If the loan sours in Year 2, the establishment fee was banked a year ago. The investor carries the risk for the life of the loan. The manager carried it for the time it took to execute the paperwork.

ASIC made this point directly in REP 820:

3. What to look for?

When engaging with the manager, investor due diligence queries should be direct:

• What is the average gross interest rate across the current loan book?
• What is the net return to investors?
• What accounts for the difference?
• Do any establishment fees flow to the manager rather than the fund? If so, how much?

Some would say that if those questions cannot be answered by reference to the PDS or Information Memorandum alone, that is a potential red flag in itself.

ASIC is now asking the same questions at scale, with rumours of enforcement investigations in the air.

Conclusion

The private credit fee spread is not a scandal in every case. For transparent, investor-aligned managers, it is simply the cost of running a fund. Disclosed, reasonable, and consistent with the return investors receive for the risk they bear.

However where the spread is wide, opaque, and driven by loan economics retained outside the fund vehicle? ASIC's interest is a signal worth taking seriously.