Private Credit's First Real Test: Three Questions That Separate the Lenders

In August 2026, ASIC's Sarah Court said of Australian private credit: "It is early days, and no doubt more and more information will come out in the weeks and months to come, but, unfortunately, what we're seeing is in Australia the first significant cracks." Two large borrowers had collapsed and several funds had restricted what investors could withdraw.

"Private credit" is a broad label. It covers a two-person outfit writing second mortgages against suburban houses, and it covers billion-dollar funds financing apartment towers. Those are different businesses carrying different risks, and most of the coverage treats them as one.

The lenders and funds now under pressure have specific things in common. Three questions identify them, and a borrower or an investor can put all three to any lender.

What ASIC Actually Found

The August warning did not come out of nowhere. Between October 2024 and August 2025, ASIC ran a surveillance of 28 private credit funds, covering listed, unlisted, retail and wholesale vehicles. The findings were published in November 2025 as Report 820, Private credit surveillance: retail and wholesale funds. It is ASIC's own account of what it found inside those 28 funds, it is free to download, and it is usually shortened to REP 820.

On disclosure, ASIC wrote that it was "concerned that private credit fund reporting may not provide investors with a true reflection of non-performing and distressed fund assets". On pricing, it found that "only four of the 28 funds published information about the interest rates or ranges charged to borrowers". On valuations, it found that "most funds we reviewed did not have effective separation between the investment committee approving loans and the representatives responsible for monitoring loan assets' performance and value after allocation into a fund".

Fund operators and investment managers were also defining and applying terms such as "default", "investment grade" and "secured loans" differently. Two funds can describe a portfolio in the same words and mean different things by them, which makes comparing the two unreliable.

ASIC has since put the sector on notice ahead of 30 June valuations and named poor private credit practices as an enforcement priority for 2026.

Then the borrowers started failing. As the ABC reported, the major NSW property developer Bathla appointed administrators in late August. Bathla's parent company, Universal Property Group, had $3.2 billion in liabilities as at 30 June 2025, the majority of which was reportedly owed to private credit funds. Jon Adgemis had earlier been declared bankrupt and his hospitality group had collapsed. He borrowed $1.8 billion, much of it also from private credit firms.

RBA Governor Michele Bullock described the underlying problem this way: "People don't know where the leverage is. They don't know who is exposed. So, any time that there's a big unknown, you know it's a big chunk of lending, but you don't know anything about it. That just makes people worried."

The RBA's March 2026 Financial Stability Review put non-bank lenders at around 6 per cent of Australian financial system assets, and private credit specifically at less than 2 per cent. The problems are real and they are concentrated in a small part of the system.

The difficulty is telling one lender apart from another from the outside. Two firms can both describe themselves as private credit and carry entirely different risks. The three questions below are the quickest way to separate them.

Question One: How Is the Lender Funded?

Most private lenders do not lend their own money. They borrow it, typically through a warehouse facility provided by a bank, and on-lend it. The lender originates the loan, prices it and manages the borrower, but the capital behind it sits in a facility a bank has agreed to provide and can decline to continue.

A warehouse facility works well until the bank behind it changes its mind. Covenants tighten, the advance rate drops, or the line is simply not renewed. The lender has not made a single bad loan, and yet it stops lending. Borrowers who were told last week that their file was progressing hear nothing this week.

Our Director, Mark Hutchins, made this point on LinkedIn a month before ASIC's warning:

Private lending exists because banks are slow and inflexible. A private lender funded by a bank inherits the thing it was built to avoid. When credit conditions tighten, that lender is subject to the same committee, the same appetite and the same timetable as the bank funding it.

Secured Lending settles every loan from its own balance sheet. There is no warehouse line to be reduced and no external credit committee to satisfy. We hold our own credit authority and we value property with our own team. That is why a complete enquiry gets a decision in hours and a straightforward file can settle within 24 hours.

The question to ask a lender is direct: are you lending your own capital, or borrowing it from a bank to on-lend to me? Both answers are legitimate. Only one of them means the lender controls whether your loan settles.

Question Two: What Is the Loan Secured Against?

Bathla is a property developer. Adgemis borrowed against hospitality businesses. One is construction and development, the other specialised trading assets. Neither is a completed building with an established resale market.

A construction loan is repaid out of a project that has to be finished, certified and sold before anyone is repaid. Cost overruns, builder insolvency, planning delays and a softening market all sit between the lender and its money. A loan against a specialised asset, whether a pub, a venue or an operating business, depends on finding a buyer in a thin market at the moment you need one.

Secured Lending does neither. Our security is a first or second registered mortgage over residential, commercial or industrial property that already exists. We do not fund construction, we do not lend against a business as a going concern, and we do not take security over plant, stock, vehicles or receivables. We lend up to 70% of assessed value, and the valuation is done by our own team rather than accepted from a file.

The terms follow from that. Loans run from one to 24 months, interest only, from $250,000 to $10 million. A short, self-liquidating loan against completed property behaves very differently in a downturn from a multi-year facility against a half-built project.

The question to ask is what the loan is secured against, and what has to happen before the lender is repaid. If the answer involves a project being completed, that is a different risk from a property that is already standing and already worth something.

Question Three: What Makes Investors Ask for Their Money Back?

Redemption limits were part of the August coverage. Several private credit funds have been restricting investor redemptions. On 26 August, one large manager announced a temporary limit of up to 1 per cent of its funds under management per month, describing it as a proactive measure in response to the potential for increased redemption activity, and citing uncertainty following proposed tax changes in the federal budget as well as publicity concerning other, unrelated private credit managers.

A redemption limit is not automatic evidence of a bad loan book. It can be a manager getting ahead of a liquidity mismatch for reasons that have nothing to do with credit quality, and in that case the stated reasons included a proposed tax change and coverage of managers it has no connection to.

A pooled fund is a perfectly sound structure, and being able to limit withdrawals is a normal feature of one. Pooling spreads a single investor's exposure across many loans, which is a real benefit. Every open-ended fund holding illiquid assets faces the same arithmetic, in any asset class: a loan cannot be called in early just because an investor wants out, so if enough of them ask in the same month, the manager has to cap how much money leaves. That is what a redemption limit does, and it protects the investors who stay in as much as anyone.

So a redemption limit by itself does not tell you a fund is in trouble. Where investors really are pulling money out, the cause is almost always the loans. They ask for their money back when they stop being comfortable with what sits underneath. When a developer the size of Bathla appoints administrators, and its parent company carried $3.2 billion in liabilities as at June 2025, anyone holding units in a fund with development exposure starts asking what exactly is in the book. Enough of them ask in the same month and the manager has to cap withdrawals.

Secured Lending offers both structures. Investors can take a position in a single loan through its own sub-trust, reviewing the security, the term and the target return before committing, or invest through our pooled fund and hold exposure across the book. Different investors want different things, and neither structure is inherently safer than the other.

We have not seen that happen, in either structure. Since these events began we have seen the opposite, with more investors participating in our fund than at any point before. The reason is the book rather than the wrapper. We do not speculate on construction and we do not lend against specialised assets, so nothing has occurred in the portfolio of the kind that sends investors looking for the exit.

Private credit is not an at-call product. Capital committed to a loan is committed for that loan's term, and an investor who may need liquidity on demand should not be in the asset class at all.

Almost every open-ended fund can limit withdrawals, and disclosing that in the documents is good practice rather than a warning sign. The question worth asking is what sits in the book that would make you want your money out in the first place.

Three Important Questions

What This Means If You Are a Borrower

If your lender has gone quiet, stopped returning calls, or keeps extending its own timeline, the problem may not be your file. It may be the funding line behind it. That is worth establishing early, because a lender waiting on its own funder cannot tell you when you will settle.

We are lending as normal. Nothing in the current market has changed our appetite, because we were never exposed to the parts of it under strain. If you have a settlement date, an expiring facility or a payout figure that is climbing, the position is the same as it has always been: property security, an exit we can see, and equity inside 70% LVR.

What This Means If You Are an Investor

REP 820 reads, in effect, as a due diligence checklist. Its seven areas were fund disclosures and transparency, marketing and distribution, fee and income transparency, governance and conflict management, valuation practices, liquidity management practices and credit risk management practices. Before committing capital to any private credit fund, ask:

• •
  Who values the loans, how often, and what happens to a valuation once a borrower falls behind
• •
  What every fee is, who receives it, and whether any of it is paid to a related party
• •
  Whether the portfolio holds related-party loans, and on what terms they were written
• •
  How that fund defines "default", "investment grade" and "secured loans", since REP 820 found those terms applied inconsistently between funds
• •
  What proportion of the book is construction or development, and at what stage those projects are
• •
  How concentrated the book is by borrower, by sector and by geography
• •
  What arrears and defaults are running at, as a number rather than as a description

Then ask the liquidity question. A fund that can gate redemptions will say so in its documents, and the ability to gate is not misconduct. It is a structural feature that is far better understood before committing capital than during a queue.

Where Secured Lending Sits

Secured Lending has facilitated more than $500 million in loans. We are a Sydney-based private lender, we fund from our own balance sheet, and we take security over real property that already exists.

None of that makes us immune to a downturn, and any lender claiming immunity should be treated with caution. What it does mean is that the exposures behind the events of August, which are development and construction lending funded through facilities a bank can withdraw, are not exposures we carry.

If you are a borrower with a deadline, talk to us or call 1300 795 175. If you are an investor, the private mortgage investment fund pages set out how the loans and the structures work.

Sources: ABC News, 27 August 2026; ASIC Report 820; ASIC, private credit put on notice; RBA Financial Stability Review, March 2026.

This article is general information about lending and market conditions. It is not financial product advice and does not take account of your objectives or circumstances. Loans are for business purposes only.

Gino Tabila

Associate Director

Mark Hutchins

Director