Australia’s corporate and financial watchdog has warned that private credit is facing its first real test, following the collapse of several large borrowers and moves by major funds to limit redemptions. The chair of the Australian Securities and Investments Commission, Sarah Court, told a gathering in Sydney that the regulator was closely scrutinising a sector far more lightly regulated than the banking industry.
She said it was early days and that more information would emerge over the coming weeks and months, but that what was appearing were the first significant cracks. Ms Court stressed the issue was not peripheral, noting that most adult Australians have exposure to private credit through their superannuation funds. That connection, she said, was why the regulator had been raising the matter for a long time.
Private credit, in its simplest form, is any lending outside the formal banking system, provided by non-bank intermediaries. The Reserve Bank has also been watching the comparatively opaque market. Its governor, Michele Bullock, said the difficulty was that people did not know where the leverage sat or who was exposed, and that a large but poorly understood pool of lending naturally made investors nervous, even as she played down fears of a systemic threat.
Recent stress has drawn attention to the sector. The move by a major New South Wales property developer to appoint administrators, alongside an earlier high-profile bankruptcy in the hospitality industry, highlighted the risks, with both borrowers having drawn large lines of private credit. At the same time, a number of non-bank lenders have restricted investor redemptions as they run into liquidity limits, with one major manager announcing a temporary cap on monthly withdrawals.
In response, the Financial Services Council, the industry’s peak body, released a new mandatory standard for private markets and private credit, saying it was developed with domestic and global operators and superannuation funds to strengthen investor confidence and lift practices. Its chief executive said rapid growth had created inconsistent practices and consumer risks that adherence to the standard would help reduce. The regulator welcomed the move and said it would provide an update on its research into the sector later in the year.
