ASIC commissioner Simone Constant says the corporate regulator is “pleased to see” the industry ramping up its own scrutiny over private credit in the past few weeks.
In February, the regulator released a discussion paper on the dynamics between public and private markets, aiming to gather feedback on how to improve regulation of the private market space, including private credit.
“The overwhelmingly open reaction to our report from the industry shows we need to keep going,” Constant tells Professional Planner.
The increased regulatory pressure on private credit funds incited concerns among members of the advice profession, and some began to re-assess the application of the asset class in client portfolios.
Licensee Count recommended its advisers sell holdings in at least three funds run by Australian private credit fund Metrics Credit Partners.
Count’s actions were timely as scrutiny ramps on the private credit sector, but Metrics said they were “very proud of the strong performance” the firm had delivered for their investors.
Just days after Count’s sell recommendation was revealed, SQM Research announced it placed the private credit sector on “watch” and would increase active monitoring of the asset class.
All of this happened within weeks after the regulator had released its discussion paper that sought feedback about regulating the sector.
“Overall, we are pleased to see most of the industry welcoming our callout for more transparency, more light, when it comes to what private credit is, where it is, who holds in it and what it looks like and what the systemic impact is,” Constant says.
“We need to be on top of this, where it is, what it looks like and you’ll hear more from us on private credit within the private markets discussion over the coming months.”
The paper identified issues within the private markets sector and the regulator believed there would be “more failures in private credit investments” with some Australian investors being at risk of losing money.
It also said the regulator is not increasing its focus on private credit to restrict participation in the sector but instead be more informed to be able to assess the risk and ensure it is properly regulated.
ASIC is examining private credit and risks to retail investors and undertaking thematic surveillance of retail private credit-focused funds.
At the time the paper was released, Constant said there was too much variability and inconsistency in the asset class.
“We’ve been trying to be targeted in our activities and focus on where we have the areas of greatest question, and we can say there’s real variation in how current standards are being met,” she said.
