The Australian Securities and Investments Commission (ASIC) has called on private credit to lift its game, saying some industry behaviours are "inconsistent with existing financial services law".
It follows stop orders against two managed investment funds last week, as well as products of another fund which ASIC believes may have failed to adequately reflect risks to investors. (See full details of funds and products below.)
Earlier this month, an ASIC report expressed concerns over the concentration of private credit in providing finance for Australian real estate construction and property development.
It estimated about half the estimated $200 billion private credit market was invested in real estate assets, with significant exposure to higher-risk projects and involving "less experienced" investors, including SMSFs.
What is the risk of private credit to SMSFs?
The report singled out a number of real estate funds targeting SMSFs to invest in them without providing adequate transparency of how their distributions would be generated.
In effect, this is seeing some SMSFs putting their funds into investing in debt that banks deem too risky to take on.
Such property projects generally have insufficient income to pay any interest until the project is completed and sold down the track or refinanced on the mainstream market.
Despite this, the report noted the funds are offering monthly distributions of between 0.7-1.00%.
It raised the question whether the distributions were coming from new investor capital, sounding alarm bells over the investment model.
The report said more transparency was needed so SMSF and retail investors found it easier to fully understand the risk exposure they are taking on.
Valuation questions
The report also noted some real estate funds targeting SMSFs are heavily marketed as having conservative loan-to-value ratios (LVRs).
But it noted there was little detail on how LVRs were determined, including whether valuations had been independently verified.
The report cited the example of some development sites purchased in 2021-2022 that are now lower in value due to building cost inflation of more than 20%.
It said if funds were still using old valuations or original LVRs, the values could be misleading.
The report is concerned "less sophisticated investors" appear to have less transparency on portfolio composition and fee arrangements than larger investors, falling well below international standards.
SMSFs a growing investor market
Recent figures released by the Australian Taxation Office (ATO) shows the number of SMSFs continues to grow in Australia.
In the year ended June 2025, net new SMSFs (the number started minus the number winding up) was at a record 38,449, more than double the previous year.
More than 1.2 million Australians are now members of around 653,000 SMSFs which collectively hold around $1.05 trillion in assets; the median asset value per fund tops $932,000.
But ASIC is concerned that while sophisticated investors such large superannuation funds fall under the prudential regulator, less sophisticated investors aren't receiving the same standard of information or oversight with some investment products.
What is private credit and why is it so big?
Essentially, private credit is finance that is provided outside of banks and public markets.
Its growth in Australia has largely occurred since the Global Financial Crisis when regulators cracked down on higher-risk lending to businesses and other borrowers.
While the ASIC report acknowledges private credit, "done well", plays a valuable role in the Australian economy, it believes some segments of the sector fall short.
It notes investors in private credit can be appropriately rewarded for taking on sub-investment grade risk, but these risks are not always adequately described in offer documents and performance reporting.
What are the funds ASIC has issued stop orders against?
Last week, ASIC issued stop orders against two managed investment funds:
- La Trobe US Private Credit Fund
- RELI Capital Mortgage
This follows concerns about the required Target Market Determinations (TMDs) for the funds that may not adequately convey investor risks.
It also made interim stop order against two products offered by managed investment scheme La Trobe Australian Credit Fund, operated by La Trobe Financial Asset Management Limited.
They are:
- 12-month Term Account
- 2 Year Account
The two funds primarily invest in mortgage-backed securities.
ASIC recommends investors in RELI Capital Mortgage to review whether the fund remains suitable for their financial objectives, situations, or needs.
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