Written

For

The

Australian

-

What

investors

need

to

know

as

ASIC

targets

private

credit

sector

When a "defensive portfolio" turns out to be filled with junk bonds, you know we have a disclosure problem.

That's essentially what ASIC has been grappling with in the private credit space, and their recent stop order on La Trobe's flagship products – including its 12-month and two-year term accounts and US private credit fund – sends a clear signal: the regulator has run out of patience with how some of these products are being marketed.

Private credit has exploded from around $40 billion to $200 billion over the past decade in Australia. That's a fivefold increase, driven largely by the major banks pulling back from certain types of lending. Into that gap have stepped dozens of private credit firms raising capital from super funds, family offices and increasingly retail investors, then onlending it to property developers and corporate borrowers.

What caught my attention in reviewing the La Trobe case was the gap between the marketing gloss and the fine print. The website talks about a "defensive portfolio" of "senior secured loans." Flip to pages 58 and 59 of the 194-page PDS and you'll find those same loans described as effectively equivalent to junk bonds – below investment grade, speculative in character. Those two descriptions are not living in the same universe.

After ASIC's intervention, the Target Market Determination was rewritten. Risk was upgraded from "low to medium" to "medium to high." Recommended maximum portfolio allocation was slashed from 35% to 10%. Redemption limits – quarterly windows, capped at 5% of units – were made explicit.

Before you hand over money to any private credit fund, ask yourself: Can I explain how my capital is actually being used? Would I lend to these borrowers directly if I could? Am I comfortable with capital loss, frozen redemptions and paused distributions? And is the extra yield really worth it when $250,000 sits government-guaranteed in a bank?

Double the cash rate sounds great – until it isn't.