ASIC Cracks Down on Private Credit Funds Amid Transparency Concerns

ASIC is reviewing private credit funds for governance, valuation practices, and conflict of interest management. Woodbridge Capital calls for stricter regulations to improve transparency and reduce risks for investors. The current lack of rules on valuations, fee disclosure, and standardization in monthly reporting has led to some funds hiding risks and fees from investors. ASIC must "significantly widen" its view of risk in the private credit asset class to ensure investor protection.

The Australian Securities and Investments Commission (ASIC) has initiated a comprehensive review of private credit funds, focusing on governance, valuation practices, and conflict of interest management. This review comes amidst growing concerns about the transparency and risks associated with the private credit market.

ASIC's surveillance of private credit funds, including Metrics Credit Partners, has been intensified following concerns about loan valuations and governance practices [1]. The corporate regulator has stated that it is exploring ways to improve transparency in the private credit space and is increasing its scrutiny of funds' governance, valuation practices, and conflict of interest management.

Metrics Credit Partners, a large alternative asset management firm with an asset portfolio of around A$30 billion, has been under additional scrutiny from ASIC due to concerns about its loan valuations and governance practices. Metrics has denied any ongoing investigation by ASIC, stating that it has actively participated in industry responses related to ASIC's review of private and public markets. The firm has also highlighted its robust governance standards and transparency in disclosing industry exposures and detailed performance and portfolio risk settings to the ASX [2].

The review by ASIC is part of a broader two-year investigation into private markets, which has been focusing on risks in the property sector, where private credit firms have expanded aggressively. ASIC Commissioner Simone Constant has expressed concern about the involvement of private credit in real estate, noting that it could lead to systemic shocks if not properly monitored [1].

Woodbridge Capital has called for stricter regulations to improve transparency and reduce risks for investors. The current lack of rules on valuations, fee disclosure, and standardization in monthly reporting has led to some funds hiding risks and fees from investors. ASIC must "significantly widen" its view of risk in the private credit asset class to ensure investor protection [3].

Globally, risks in the property sector are rising as private credit providers target riskier loans and relax lending standards compared to traditional banks. Moody's Ratings projects that $1 trillion in commercial mortgages will shift to private credit over the next three to five years as banks' balance sheets shrink [2].

ASIC's review aims to test and address key risks, including the management of related-party transactions, and will provide updates before the end of 2025. This review is crucial for enhancing investor confidence and ensuring the integrity and proper functioning of Australian financial markets.

References:
[1] https://www.moneymanagement.com.au/news/funds-management/funds-under-review-asics-private-credit-probe
[2] https://www.ainvest.com/news/australia-regulator-asic-probes-private-credit-manager-metrics-2507/
[3] https://beincrypto.com/paolo-ardoino-tether-investments/