Advisers’ private credit usage under ASIC scrutiny
Private credit providers may be required by ASIC to disclose how much financial advisers have invested in their funds if requested by the regulator.
Last year, the regulator noted it was setting up a specific private markets division to assess governance, reporting and conflicts of interests at these firms.
Amid its strategic priorities for 2025, the regulator said it will examine changes in public and private markets for equity and debt capital, including the significant growth of private markets and the implications for the integrity and efficiency of markets.
It will also conduct thematic reviews of corporate advisers and private finance funds, including governance, valuation practices, management of conflicts of interest, staff and insider trading, protection of confidential information, and fair treatment of investors.
ASIC chair Joe Longo said: “While Australia’s private markets are dwarfed in size by our listed equity markets, their opacity presents an outsized risk to market integrity, particularly as more investors become exposed.
“The addition of a new strategic priority aimed at driving consistency and transparency across markets and products puts all market participants on notice.”
According to law firm Hall & Wilcox, this means private credit organisations could find themselves required to produce documentation on items such as valuation policies, conflict of interest and assets in the fund if they receive an ASIC notice of direction.
One of these areas could relate to the distribution of funds and how much of this is going to the intermediary market. Part of this will relate to whether funds are meeting their obligations regarding target market determinations (TMDs) and only selling the fund to those specified in their TMD.
“ASIC may direct entities to declare information relating to distribution, including how interests in the fund have been sold to clients during the relevant period, the channels through which interests in the fund are sold, the proportion of investments made through a financial adviser, and the assessment process entities have implemented to ensure investors are in the target market in accordance with the fund’s target market determination,” the law firm said.
Earlier this year, a report from EY discussed how alternative firms, including private credit providers, were targeting the retail and wholesale market as a new frontier for growth. However, this market presents challenges in terms of how much clients understand the intricacies of the asset class and the potential for losses from the funds’ illiquidity and opaque nature.
The time frame for this activity is two years, ASIC said.
According to Praemium, nearly 70 per cent of high-net-worth-focused advisers cited the asset class as a necessity for meeting client demands in the future, while advisers managing client portfolios above $20 million typically have an average of 14 per cent allocated towards alternatives.
AUTHOR
Laura Dew
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