The message from ASIC Commissioner Alan Kirkland at the 2025 Researcher Forum was unmistakable: private credit is now an enforcement priority, and the advisor channel is firmly in the regulator's sights.

Speaking to a room of researchers, asset consultants and licensees and our own Jonathan Tolub, Kirkland acknowledged that private credit "done well plays an important role in the financial system." But his subsequent remarks made clear that ASIC has serious concerns about governance, transparency, fees and valuations across a sector that has grown 500% in a decade to over $200 billion.

For advisers, the regulatory shift demands a fundamental rethink of how private credit fits into client portfolios. In this week's What We Are Working on video InvestSense Private Markets Specialist (Joel Sasim) and Betashares Director of Private Assets (James Fleiter) discuss these developments and Joel’s recently published and timely paper on the subject.   

The case for inclusion remains sound

Private credit continues to offer genuine portfolio benefits. Floating rate exposure provides protection against interest rate volatility, a welcome characteristic after 2022 demonstrated that bonds and equities can sell off simultaneously. Returns of 8-10% from quality Australian managers offer a meaningful premium over traditional fixed income. Senior secured positions at the top of the capital structure provide downside protection, with losses typically only occurring after equity has been written to zero.

But the due diligence bar has risen sharply

ASIC's Phase 2 surveillance is explicitly targeting retail distribution through the advisor channel to "test the quality of advice." 

The InvestSense whitepaper on private credit catalogues the warning signs that should prompt adviser caution. Fee structures vary wildly, with ASIC finding that non-disclosed remuneration can be three to five times publicly disclosed management fees. Some managers retain borrower-paid fees while showing artificially low headline costs, making comparison nearly impossible without deep investigation.

Valuation practices remain inconsistent. Kirkland highlighted concerns about funds revaluing the same distressed asset at different times, and real estate valuations based on completion costs rather than current value, effectively ignoring construction risk entirely.

The Merricks Capital redemption suspension, Metrics governance questions and ASIC's stop orders against La Trobe demonstrate that even large, established managers face challenges the market hadn't anticipated.

Practical steps for advisers

Position sizing emerges as the critical risk management tool. ASIC's action forcing La Trobe to reclassify its products from "core" to "minor" holdings signals regulatory expectations: private credit should not dominate defensive allocations.

Manager selection requires examining what sits beneath headline returns. Does the manager pass borrower fees through to investors or retain them? Are valuations conducted independently and quarterly? Has the team managed through a full credit cycle? What are the actual liquidity terms, not the marketed ones?

Documentation matters more than ever. When ASIC reviews advice files, they will examine whether costs and fees were adequately considered relative to alternatives, whether strategies matched client risk profiles, and whether tax implications were properly addressed.

The path forward

Private credit isn't disappearing from portfolios, nor should it. But the era where some have been too accepting of manager marketing at face value is over. Advisers, and their asset consultants, who invest the time to understand fund structures, fee mechanics, and governance arrangements will be positioned to use private credit appropriately. Those who don't may find themselves explaining their recommendations to a regulator with enforcement powers and an appetite to use them.

As Kirkland reminded the Forum audience, advisers, researchers and licensees all share responsibility for ensuring clients receive products that are safe, appropriate, and aligned with their best interests. In private credit, that responsibility has never been weightier.