The report REP 280 Private Credit Surveillance surveyed 28 private credit funds between October 2024 to August 2025 including listed, unlisted, retail and wholesale funds.
This spanned Australian managers such as Metrics Credit Partners and La Trobe Financial, global firms like KKR and smaller managers such as RELI Capital.
This surveillance follows a private markets review released in September.
The report sought to assess issues such as fund disclosures, marketing, income transparency, governance and valuation.
Eight private credit funds were available to wholesale clients as non-registered funds while 20 were retail registered funds, varying in size from $11 million to $12 billion in assets under management.
The average AUM was $26.8 billion while the retail funds had an average number of investors at 3,421 although this dropped dramatically to 378 for the wholesale funds.
Valuation practices
When it came to valuation practices, ASIC said most funds demonstrated a lack of standardisation in their valuation processes.
The regulator observed many funds failed to separate the investment committee approving the loan from the committee charged with overseeing the loan’s value after its allocation into a fund or the independent third-party valuation of loans.
A failure by open-ended funds to adjust valuations in times of stress in a timely manner could allow some fund members to exit at a higher price, at the expense of the remaining investors.
“In our surveillance we observed that private assets were subject to heightened valuation risks, due to infrequent trading and price discovery.
“Many of the private credit funds we reviewed were open-ended funds, with regular monthly or quarterly redemption periods. For open-ended funds in times of stress, failure to adjust valuations in a timely manner could allow some fund members to exit at a higher price, at the expense of the remaining investors.”
Fund operators and investment managers should maintain robust arrangements to ensure timely valuations, remain alert to signs of financial stress and act promptly to revalue loans at risk of impairment.
Looking at examples of poor valuation practices, it noted:
- Absent or incomplete valuation policies: Three wholesale funds had no valuation policies and two retail funds had incomplete valuation policies that didn’t adequately cover important information in detail, including governance arrangements; valuation frequency, methodology (tailored to relevant private credit assets), inputs and limitations; when independent valuers were involved; and relevant triggers for fresh valuations. One other wholesale fund that invested in securitised assets did not have policies covering that asset class, only policies covering other forms of credit.
- ‘As if complete’ construction loan valuations and loan-to-valuation ratio (LVR): Funds that invested in real estate construction loans adopted differing approaches to valuing the collateral.
- Five wholesale funds valued the collateral for a number of loans on an ‘as if complete’ basis rather than ‘as is’. For example, the loan portfolio in a private credit fund may have included a mix of real estate financing loan types (land, pre-construction and construction loans) in which the manager accepted a mix of ‘as is complete’ and ‘as if complete’ valuations. As a result, the LVR may not have provided sufficient information to investors about the basis of valuation across the loan portfolio.
- Opaque valuation practices: Many funds provided limited information on valuation procedures and methodologies that would help investors assess whether the fund had reliable controls to mitigate the risk of inaccurate valuations. One wholesale fund did not disclose monthly fund values to investors.
- Processes not addressing provisioning and impairments: One fund relied on credit risk management processes to govern circumstances that could impact the value of a loan asset. However, this credit risk management process did not have a clear connection to the impact on valuation outcomes, such as provisioning and impairments that may affect unit price outcomes.
- Infrequent valuations: One retail fund only conducted valuations on the collateral (real estate) very infrequently: once every 42 months in ordinary circumstances.
- Valuation review only in response to credit triggers: Two funds only conducted valuations of fund assets in response to credit risk triggers such as default, non-performance, covenant breach or another significant economic event. Some of the fund operators justified this on the basis that loan assets were otherwise carried at cost/at par plus accrued interest.
- Misaligned valuation frequency for master and feeder funds: In a feeder fund, the integrity of the valuation of the master fund may have been compromised by the valuation processes of the underlying funds, as there appeared to be a timing mismatch between the frequency of the valuations of the underlying funds and those of the master fund.
ASIC recommended funds should conduct quarterly independent valuations or valuations reviewed by an independent party as well as valuations made for the benefit of the lender or security holder. They should also implement clear and consistent valuation methodologies and policies that result in fair valuations.
Liquidity management
When it came to liquidity management, ASIC said many funds implemented frequent stress testing and clearly disclosed liquidity challenges to investors. However, frequency of stress testing varied from weekly to annually.
Open-ended funds typically offered monthly or quarterly redemption window and some operated a two-tier system which allowed them to simultaneously open and closed-ended.
“Private credit funds typically invest in illiquid assets. This creates challenges that fund operators need to carefully manage using appropriate liquidity management tools, particularly in the event of significant fund outflows or market turbulence. These challenges are often exacerbated in open-ended funds.
“To fund regular distributions to investors, managers should also ensure that the source of funds is sustainable and stems predominantly from cash flows generated by underlying assets, rather than from investor capital or contributions from new investors. This is of particular importance when funds engage in construction and development financing, due to the lack of cash flow generated.”
Liquidity management tools used by managers included lines of credit for redemption requests, initial lock-up periods, cash buffers and redemption caps.
Poor practices included:
- No liquidity policy: One wholesale fund did not have a liquidity policy in place and did not describe liquidity risk (or the implications for redemptions) in detail in its offer document, nor did it articulate its liquidity policies for managing such risks.
- Side letters with unequal redemption rights and distribution rates: One wholesale fund used side letters with redemption terms and distribution rates negotiated with some investors to ensure it had sufficient liquidity to take on new loan opportunities. It explained this approach as necessary for finding capital to deploy for new loan opportunities as they arose. However, this gave rise to potential unfairness, since some investors obtained better distribution rates or redemption terms than others who
invested under the terms of the information memorandum. - Absent stress testing: Of the wholesale funds, only two performed stress testing. A rationale for not performing stress testing was the short-term duration of the loans under management. Across retail and wholesale funds, more frequent redemption periods did not result in more frequent stress testing. Promoting regular redemption windows for investors to access invested capital at intervals inconsistent with the average loan term gave rise to a greater risk of liquidity mismatch and risks that needed to be managed.
