Key Takeaways
- • ASIC Report 846, released 10 November 2026, found persistent weaknesses in transparency, governance, fee arrangements and investor protection across private credit funds, with many deficiencies from its November 2025 Report 820 still unresolved.
- • Only 2 of 24 surveilled credit funds (approximately $18 billion combined assets) passed the full economic benefits of interest and borrower fees through to investors.
- • In one fund, undisclosed borrower fees, interest margins and default interest retained by a related-party lender exceeded four times the fund's disclosed management costs, with about 38 cents paid to a related party per $1 distributed to investors.
- • 18 of 24 funds (75 per cent of the sample) used multilayered intermediary structures, and ASIC documented transfers of approximately 17 and 15 per cent of fund assets between related funds within a single year without full investor disclosure.
- • Livewire Markets research argues the disclosed management expense ratio alone can distort manager comparisons, and recommends investors demand a reconciliation of gross borrower payments against net fund returns.
Summary
The Australian Securities and Investments Commission released Report 846, "Private credit funds: Do investors know what they're getting?", on 10 November 2026. According to the article by Jay Kumar, published on Livewire Markets, the report identifies persistent weaknesses in transparency, governance, fee arrangements and investor protection across the sector, and many deficiencies flagged in ASIC's November 2025 Report 820 remain unresolved. ASIC examined 24 retail and wholesale credit funds managing approximately $18 billion, alongside 46 financial advice cases involving 19 advisers. Findings in the surveillance sample suggest some investors may carry substantial credit, liquidity and capital risks without adequate disclosure of their true exposures or of the economic benefits retained by fund managers and associated entities.
The most consequential finding, according to the article, is that the disclosed management cost commonly used to compare managers may capture only part of what a manager and its associates earn from a loan book. In one example, undisclosed borrower fees, interest margins and default interest retained by a related-party lender exceeded four times the fund's disclosed management costs. For every dollar distributed to investors in that fund, the related party received approximately 38 cents during the relevant year. Only two funds in the sample passed the full economic benefits of interest and borrower fees to investors. Because borrower payments can be collected at points before the fund, including origination, servicing, establishment and default charges, the fund receives only the residual, and its management fee is calculated on that residual.
The article argues that these arrangements are not necessarily inappropriate, since origination and servicing are legitimate functions. The concern is that inadequate disclosure makes the economics invisible to investors, who supply the capital and bear credit losses. Reconciling the two measures requires tracing aggregate borrower payments to the entities that received them; the difference from recorded fund revenue is the amount retained upstream. Default interest is a particular concern, as it can rise when a loan deteriorates, creating revenue for a related entity at the moment the fund's position weakens.
Structural complexity is treated as a risk in its own right. Eighteen of the 24 funds operated through multiple layers of intermediary entities, and ASIC raised concerns about special-purpose vehicles, related-party exposures and transactions between funds under the same management group. The article notes that each layer makes it harder to establish whether transactions are arm's length, whether assets transfer at fair value, aggregate exposure to common borrowers and collateral, and which entity holds security. ASIC documented separate examples in which approximately 17 per cent and 15 per cent of fund assets were transferred between related funds within a single year without full investor disclosure. The ASIC figures relate to its surveillance sample and are not presented as representative of the entire private credit industry.
The most consequential finding, according to the article, is that the disclosed management cost commonly used to compare managers may capture only part of what a manager and its associates earn from a loan book. In one example, undisclosed borrower fees, interest margins and default interest retained by a related-party lender exceeded four times the fund's disclosed management costs. For every dollar distributed to investors in that fund, the related party received approximately 38 cents during the relevant year. Only two funds in the sample passed the full economic benefits of interest and borrower fees to investors. Because borrower payments can be collected at points before the fund, including origination, servicing, establishment and default charges, the fund receives only the residual, and its management fee is calculated on that residual.
The article argues that these arrangements are not necessarily inappropriate, since origination and servicing are legitimate functions. The concern is that inadequate disclosure makes the economics invisible to investors, who supply the capital and bear credit losses. Reconciling the two measures requires tracing aggregate borrower payments to the entities that received them; the difference from recorded fund revenue is the amount retained upstream. Default interest is a particular concern, as it can rise when a loan deteriorates, creating revenue for a related entity at the moment the fund's position weakens.
Structural complexity is treated as a risk in its own right. Eighteen of the 24 funds operated through multiple layers of intermediary entities, and ASIC raised concerns about special-purpose vehicles, related-party exposures and transactions between funds under the same management group. The article notes that each layer makes it harder to establish whether transactions are arm's length, whether assets transfer at fair value, aggregate exposure to common borrowers and collateral, and which entity holds security. ASIC documented separate examples in which approximately 17 per cent and 15 per cent of fund assets were transferred between related funds within a single year without full investor disclosure. The ASIC figures relate to its surveillance sample and are not presented as representative of the entire private credit industry.
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