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ASIC has outlined ways to bring the private lending industry into line with practices in the banking sector. (Supplied: asic.gov.au)<\/p>\n
Despite the revelations, ASIC commissioner Simone Constance reiterated that private credit, when done well, was good for the economy and for the country.<\/p>\n
“The problem is that it is not consistently done well,” she told the briefing.<\/p>\n
How you became a banker to high-risk borrowers<\/p>\n
The deep dive into private and public credit markets is the latest step in an 18-month exploration into the workings of our equity markets, including the ASX Ltd.<\/p>\n
“Markets aren’t some abstract construct,” Mr Longo said.<\/p>\n
“They represent the money and investment flowing through our economy. They are literally the lifeblood that lets businesses grow and employ people.<\/p>\n
“To that end, we want to ensure that we’re making active choices about how these markets develop so we get the markets we want.”<\/p>\n
The alternative, he said, was that Australia could end up a passive recipient of changes from outside, which may not be for the better.<\/p>\n
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When it comes to private markets, Mr Longo noted that their acceptance has been driven by the incredible rise of the Australian superannuation system, which has become one of the biggest savings pools on the planet, and which has consistently sought out higher yields.<\/p>\n
Most Australians now are exposed to private markets through their super funds, but an increasing number of local investors \u2014 particularly those with self-managed super funds \u2014 are following suit.<\/p>\n
According to the ASIC chairman, collaboration between government and regulators will be required to create a solid framework and foundations for markets to thrive.<\/p>\n
And he insisted that, for ASIC to achieve its aims, law reform will be required.<\/p>\n
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ASIC’s interest in private credit was spawned by the incredible growth in companies accessing funds and investors seeking out lending yields well above those available from traditional banks.<\/p>\n
Ms Constance noted that private credit had expanded at a phenomenal 500 per cent during the past decade.<\/p>\n
The combination of that growth with a rapidly expanding pool of superannuation funds could result in a potential lift in risk, if not properly overseen.<\/p>\n
“Our goal here is to ensure private credit has strong foundations to continue growing from, to try and avoid future disruption,” she explained.Do not ask, do not get told<\/p>\n
Lack of disclosure was one of the key failings of many in the private credit industry, particularly around the interest rate differential between investor earnings and borrowing costs.<\/p>\n
ASIC found private credit retail funds delivered returns between 4 per cent and 10 per cent to local investors. But those same funds were charging borrowers between 2.5 per cent and 44.51 per cent.<\/p>\n
In one case study, a private credit fund’s portfolio make-up changed significantly over five years.<\/p>\n