The nation’s $200 billion private credit sector is showing increasing signs of stress after some of its biggest firms limited redemptions on their portfolios, prompting the corporate regulator to warn that significant cracks were beginning to appear in the industry.
Australian Securities and Investments Commission chairwoman Sarah Court said private credit firms were facing their first “real test” after several private credit lenders were caught up in the collapse of Sydney property developer Bathla, which has more than $3.5 billion in debt.
“Unfortunately, what we’re seeing at the moment – and it’s early days, and no doubt more information will come out in the weeks and months to come – is the first significant cracks,” said Court, at a lunch hosted by the Committee for Economic Development of Australia.
Her remarks came after MA Financial, which does not have exposure to Bathla, told investors on Tuesday that redemptions from its $2.3 billion secured property funds would be restricted to 1 per cent per month, amid an escalation in withdrawal requests. Investors have grown more anxious about the private credit industry’s exposure to property development.
The collapse of Bathla, a major property developer in western Sydney, has engulfed some of the nation’s largest private credit funds, such as CVS Lane, Centuria Bass, 360 Capital, Balmain Private and Credit Connect, amid a weakening property market and rising interest rates.
During its surveillance of 28 private credit funds last year, ASIC found poor practices including inconsistent and unclear reporting, opaque fee structures, weak governance, poorly managed conflicts of interest and bad valuation practices. It has called on the industry to lift its standards.
Morningstar analyst Thomas Dutka warned that “there is likely more pain down the track” for the sector.
“We’ve had a falling property market, rising interest rates as well and development costs. It’s not surprising that there are signs of distress in that segment.”
Earlier this month investors in another private credit fund Merricks, which limited redemptions on its $1.2 billion flagship fund a year ago, were told redemption requests in June were cancelled due to the “fund’s current liquidity position”.
MA Financial joint chief executive Chris Wyke said his firm’s decision to limit redemptions was a “proactive measure in response to the potential for increased redemption activity”.
MA Financial is one of the country’s largest private credit investment managers, and has $15 billion in funds under management, of which half is private credit.
Wyke conceded that the private credit sector was experiencing challenges but said there was a “need for capital to fund the segments private credit currently finances”.
“When large things occur, they have ripple effects throughout subsectors and markets, but the capital is required, and at the end of the day, an efficient and open market of capital will find a way to fill the void on price and terms.”
Source: https://www.afr.com/companies/financial-services/private-credit-faces-real-test-as-developers-fail-investors-flee-20260826-p60rqu