Key Takeaways
- • ASIC's 58-page report on Australia's private credit fund sector, valued at roughly $250bn, found widespread poor practice, including opaque fee structures, inconsistent reporting, and weak governance.
- • Of 22 funds reviewed, only two "passed on the full economic benefits of interest and borrower fees onto investors," according to the regulator.
- • ASIC has issued six interim stop orders since September, which Commissioner Simone Constant said is evidence that practices have not improved in line with the sector's growth.
- • Of the financial advice files reviewed, 43 per cent were non-compliant.
- • ASIC's probe, launched in November of the prior year, covered 24 wholesale and retail private credit funds with combined assets of $18bn, and found many issues identified in an earlier report a year before remained.
Summary
The Australian Securities and Investments Commission (ASIC) has warned that investors in Australia's $250bn private credit fund sector are not receiving a complete picture of the risks involved before committing capital, according to a 58-page report published by the regulator and reported by Adelaide Now. The report describes a "litany of examples of poor practice," including opaque fee structures, inconsistent reporting and weak governance across the sector.
The investigation, launched in November of the prior year, reviewed the practices of 24 wholesale and retail private credit funds with combined assets of $18bn. Of the 22 funds reviewed in the final findings, ASIC found that just two "passed on the full economic benefits of interest and borrower fees onto investors." The regulator also reported that 43 per cent of the financial advice files it examined were non-compliant.
ASIC Commissioner Simone Constant said funds were leaving investors in the dark about how their money was being used and what charges were being levied. She noted that the regulator has issued six interim stop orders since September, stating that "practices have still not improved in line with this growth." Constant acknowledged "pockets of improvement" but said "complexity and opacity persist, in some cases leaving investors unable to properly assess the risks and benefits of their investments."
The report follows an earlier ASIC review, a year prior, that identified poor fee, disclosure and conflict-management practices. ASIC says many of those issues remained at the time of the latest findings. Constant highlighted structures in some parts of private credit where there were more special purpose vehicles within a group than employees managing investor money, stating that "effective disclosure of risks becomes near impossible." She added that "investors should not need forensic skills to understand how a fund operates."
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The investigation, launched in November of the prior year, reviewed the practices of 24 wholesale and retail private credit funds with combined assets of $18bn. Of the 22 funds reviewed in the final findings, ASIC found that just two "passed on the full economic benefits of interest and borrower fees onto investors." The regulator also reported that 43 per cent of the financial advice files it examined were non-compliant.
ASIC Commissioner Simone Constant said funds were leaving investors in the dark about how their money was being used and what charges were being levied. She noted that the regulator has issued six interim stop orders since September, stating that "practices have still not improved in line with this growth." Constant acknowledged "pockets of improvement" but said "complexity and opacity persist, in some cases leaving investors unable to properly assess the risks and benefits of their investments."
The report follows an earlier ASIC review, a year prior, that identified poor fee, disclosure and conflict-management practices. ASIC says many of those issues remained at the time of the latest findings. Constant highlighted structures in some parts of private credit where there were more special purpose vehicles within a group than employees managing investor money, stating that "effective disclosure of risks becomes near impossible." She added that "investors should not need forensic skills to understand how a fund operates."
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