Private credit's stress test: from developer distress to fund freezes, ASIC's enforcement moment arrives

Australia's private credit market has reached roughly $213 billion, up from $35 billion a decade ago. Millions of Australians are now exposed to the asset class, whether directly through managed investment schemes or indirectly through their superannuation. New fund entrants continue to arrive, capital has been flowing into property development, infrastructure and, increasingly, AI-related borrowers, and the lines between wholesale and retail distribution are blurring. But the strains are now visible. In August, the collapse of a major Sydney property developer owing roughly $3.4 billion to creditors triggered redemption freezes across several private credit funds. It is, by any measure, a sector that has outgrown the frameworks designed to safeguard it.

ASIC has been saying so with increasing directness. Over the past eighteen months, the regulator has moved through a deliberate sequence, one we have tracked across this series: commissioned research (REP 814), thematic surveillance of 28 funds (REP 820 and REP 823), updated conflicts guidance (RG 181), a compliance catalogue mapping the sector's legal obligations, enforcement action against platform trustees and fund distributors, snap reviews of 52 funds ahead of 30 June valuations, and, most recently, ASIC Commissioner Simone Constant's pointed warning to a room of property and finance professionals in Sydney that the sector should "prepare for enforcement action" because "we are now well beyond warnings."

That speech, delivered on 22 September 2026 at the CAFBA Commercial Property and Development Summit, is worth reading in full. Constant singled out superannuation fund chief investment officers for failing to ask their external managers whether they meet ASIC's ten principles of private credit done well, principles published alongside REP 823 in November 2025. "Why wouldn't you ask 'if not, why not' of your own external fund managers?" she said. "Especially when you are accountable to your members and investors for their success or failure."

The 10 principles cover stewardship, governance, transparency, fees, conflicts of interest, valuations, liquidity and credit risk management. They are not enforceable rules in themselves, but ASIC has made clear it regards them as the benchmark against which it will assess conduct. When the regulator surveyed 28 private credit funds for REP 820, it found that only four disclosed information on interest rates charged to borrowers, fewer than half had detailed written credit or impairment policies, and just two of the 14 wholesale funds surveyed conducted stress testing as part of their liquidity risk management. Those findings are now the evidentiary baseline for enforcement decisions.

The regulatory pressure has sharpened considerably since June. ASIC's snap review of 52 private credit funds overseeing $76 billion produced a public warning, issued two weeks before 30 June, that end-of-year valuations must be "current, accurate and grounded in realistic assumptions." Constant described a "slow but certain creep" in credit deterioration, driven by inflation, rising input costs and supply disruptions working through borrower performance. The wave of redemption freezes that followed, across funds exposed to the collapsed developer and, more recently, across funds dealing with auditor-driven valuation adjustments, has only deepened that concern. In her September address to Parliament, ASIC Chair Sarah Court described "several troubling developments in the private credit sector" and confirmed that the regulator's strongest enforcement period on record, $830 million in civil penalties in the last financial year, would extend into 2026–27.

ASIC has also continued to issue stop orders against retail private credit products, most recently halting offers under a cash management fund whose product disclosure statements failed to adequately describe credit risk, borrower concentration and inappropriate risk ratings. These actions flow directly from the surveillance programme announced in REP 820 and confirm that ASIC is treating design and distribution obligations as a live enforcement tool in private credit.

For fund managers, the implications are practical and immediate. Every private credit fund, wholesale or retail, should be able to demonstrate, in writing, how it measures against each of ASIC's 10 principles. That means documented governance frameworks. It means independent, timely valuations that reflect current market conditions. It means fee and margin structures that can answer, in plain terms, who earns what and how much. And it means conflicts management policies that identify and manage related-party arrangements, borrower-paid fees, and vertical integration - the specific practices ASIC flagged in REP 820 and which we analysed in detail in our earlier article on the shift from principles to enforcement.

For superannuation trustees and institutional investors allocating to private credit, a segment ASIC has examined through its recent review of platform oversight, the obligation is different but no less pressing. Trustees are not fund managers; they are regulated by APRA under the Superannuation Industry (Supervision) Act 1993 and owe statutory duties to act in the best financial interests of their members. Those duties now require genuine, look-through due diligence on the private credit funds they invest in, not passive reliance on manager-provided marks and ratings. APRA’s proposed revisions to SPS 530 reinforce the point, introducing accountability obligations that would require RSE executives to attest annually to the adequacy of their investment governance arrangements. Constant's message to CIOs was direct: trustees "cannot treat private credit as an easy, high-yielding substitute for traditional fixed income while accepting manager marks at face value." The Financial Services Council's Best Practice Standards, released in August, provide a second reference point alongside ASIC's principles, but neither set of standards will protect a trustee that has not done the work.

The sector should also note that ASIC's second tranche of surveillance is due imminently and will examine the effect of overseas redemptions and valuation changes on local funds. A follow-up pulse check on redemptions and valuation movements is also planned. For funds whose governance, disclosure and valuation practices have not materially improved since REP 820, the events of the past month, redemption freezes, forced write-downs, and the continued expansion of ASIC's enforcement programme demonstrate that the consequences of inaction are no longer hypothetical.

Private credit remains a legitimate and important part of Australia's capital markets. It finances productive projects, supports infrastructure, and provides yield in an environment where investors are searching for returns above those available from traditional fixed income. But ASIC has made clear, through its reports, its guidance, its enforcement actions, and now its public statements, that poor practice will not be tolerated, and that the ten principles are not a menu from which to select the convenient ones. The question for boards and investment committees is the one Constant put to the room in Sydney: "…have you discussed these principles in your own boardroom? Have you embedded them into your decision-making? And if not, why not?"