What is private credit?
Private credit refers to lending by non-bank institutions, such as asset managers, to borrowers who may not qualify for traditional bank loans. These loans are typically illiquid, unlisted, and often used to finance real estate developments, mid-market businesses, or other higher-risk ventures. The sector gained traction globally after the 2008 Global Financial Crisis, when banks pulled back from riskier lending due to tighter capital requirements.
The Reserve Bank of Australia estimates that private credit makes up around 14% of corporate lending1. Australian Securities and Investments Commission (ASIC) estimates suggest it now accounts for over $200 billion in assets under management, with over half of this directed to financing real estate developments. This high sector concentration and exposure to the construction process brings risks that ASIC feels are not being adequately disclosed, resulting in information asymmetry between private credit managers and investors.
What does La Trobe Financial do?
La Trobe Financial is one of Australia’s largest non-bank lenders, managing over $20 billion in assets across residential and commercial property loans. It raises funds from around 120,000 investors, many of them retirees, offering products such as “term accounts” and private credit funds2.
What are ASIC’s concerns?
On 18 September 2025, ASIC issued interim stop orders on three La Trobe products – its 12-month “term account,” two-year account, and US Private Credit Fund (Class B units) – citing deficiencies in their Target Market Determinations (TMDs). These documents are required under the Design and Distribution Obligations (DDO) regime and must clearly define the type of investor the product is suitable for. La Trobe’s TMDs suggested investors could allocate up to 50% of their investible assets to each product, which ASIC deemed inappropriate given the risks involved3.
Therefore, while the funds themselves were not accused of poor performance or liquidity issues, ASIC deemed that La Trobe’s marketing and documentation failed to adequately reflect the risks. The use of terms like “term account,” which closely resemble “term deposit,” was seen as particularly misleading, especially for retail investors who may not understand the difference. La Trobe’s “term account,” unlike a bank term deposit, is not protected by the Financial Claims Scheme’s $250,000 guarantee and invests in private credit assets rather than lending to a bank, exposing investors to potential capital loss and illiquidity.
How did La Trobe respond?
La Trobe responded by taking its online investment platform offline, citing compliance with ASIC’s orders, although ASIC later clarified it had not instructed the firm to do so. The move left investors unable to access their accounts or make new investments for several days, sparking confusion and concern4.
La Trobe also amended its TMDs, reducing the recommended portfolio allocation for each product to 25% and introducing investor questionnaires to assess suitability. ASIC lifted the stop orders on the 12-month and two-year term accounts on 24 September, and the stop-order on the US Private Credit Fund on 7 October.
How is private credit being mis-sold?
La Trobe’s case is part of a wider crackdown by ASIC on the private credit sector. A recent ASIC report found that the Australian market operates below international standards, with excessive exposure to high-risk property development, poor transparency and disclosures, and questionable governance practices5.
ASIC’s main concern is retail investors, particularly retirees and SMSFs seeking income, being misled into believing private credit products are low risk, when they are not. Many funds advertise high yields without adequately disclosing the potential for capital loss and exposure to speculative real estate projects. These funds also often fail to communicate their illiquidity, causing investors to assume they can access their capital on demand, when in fact this is limited by redemption windows, and underlying assets that cannot be easily traded. In stressed market conditions, redemptions can even be gated or suspended entirely, leaving investors unable to exit their positions.
ASIC feels these risks are not being adequately disclosed, creating a mismatch between the perceived and actual risk of private credit products. This is amplified by marketing materials that frequently use terms like “term account” or “capital stable” that imply safety, despite disclaimers buried in lengthy product disclosure statements that say otherwise. ASIC’s concern is that these products are being mis-sold as low-risk income solutions, leading to outsized allocations in portfolios, which may not match the investor’s risk tolerance.
What are ASIC’s concerns with private credit reporting?
ASIC has flagged several concerns with private credit performance reporting, particularly practices like recycling investor capital as returns. This typically involves using new investor inflows to fund distributions to existing investors, during phases where the underlying assets, such as construction loans or troubled loans, generate little or no cash flow. While not illegal, this can mislead investors into believing the fund is producing stable income, when in reality it may be relying on fresh capital to maintain the artificial appearance of returns. ASIC is concerned such practices can obscure the true risk profile of these investments.
Unlike in the US, where private credit vehicles like Business Development Companies (BDCs) are subject to quarterly disclosures and independent asset valuations, most private credit funds in Australia rely on internal, subjective asset valuations. This leaves scope to inflate the value of underlying assets, as funds mask loan impairments and inflate past performance. Inaccurate valuations can then affect assets’ loan-to-value ratios (LVRs), which may appear conservative on paper but in fact be much higher when measured against realistic asset values, increasing the risk of investor losses. ASIC feels this can further obscure the true risk profile of funds for investors, by making it difficult to assess the health of underlying loan portfolios.
Does private credit have a place in investors’ portfolios?
Private credit plays an important role in funding borrowers underserved by banks, and may be a valuable addition to a diversified portfolio, offering higher yields than traditional bonds and returns that may be uncorrelated with equities. But it is not a substitute for term deposits or investment grade bonds, and carries higher credit risk and greater potential for capital losses, illiquidity, and limited redemption windows that investors need to be prepared for. Investors should therefore be wary of private credit funds promising high returns without transparent disclosure of risks and liquidity, striking a balance between their risk tolerance and an allocation to private credit that they are comfortable with.
Where to next for La Trobe and ASIC?
La Trobe has resumed marketing for its flagship term account funds and US Private Credit Fund. The firm remains in the midst of a $2.5 billion sale process by its owner Brookfield, with bidders including Warburg Pincus and CVC Capital Partners6. ASIC, meanwhile, has signalled that more enforcement actions are coming for the industry, as it reviews both disclosure requirements and investor protections.
References
- Australian Financial Review, “Private credit faces tougher regulation after damning report,” 22 September 2025
- Australian Financial Review, “ASIC lifts stop orders on two of three La Trobe funds,” 24 September 2025
- Australian Financial Review, “Regulator did not instruct La Trobe to halt online funds access,” 22 September 2025
- Australian Financial Review, “La Trobe investors in dark over online platform takedown,” 21 September 2025
- VanEck, “Trust in private credit,” 26 September 2025
- Australian Financial Review, “La Trobe investment products hit with stop orders by ASIC,” 18 September 2025