The Maturity of Private Credit in Australia: An evolution required

The Australian private credit landscape has reached a defining crossroads, including coming under scrutiny from the Australian Securities & Investments Commission (ASIC). While private credit has been around for decades, it has recently grown into a $200 billion powerhouse. However, with rapid growth comes the inevitable gaze of the regulator and the need for the watermark to rise across the country. In the end, the anticipated beneficiaries of a higher degree of scrutiny will no doubt be both the investors in the market and Australia‘s potential reputation as a market leader in the global industry, similar to the way in which our superannuation industry commands global respect.

The ASIC Report 820: Private Credit Surveillance report, while a lengthy read for investors, for fund managers and other investment institutions, it serves as a vital health check for an industry that is no longer a niche alternative but, rather, becoming even more of a systemic pillar of the Australian financial system. For wholesale investors, the report is a double-edged sword: it validates the asset class’s importance while making it clear that the era of wholesale funds adopting a “regulatory light” mindset must evolve.

Global Context: Australia in the Private Credit Arena

To understand the trajectory of the Australian market, one must look at the global stage. While Australia’s is a growing market, it remains a fraction of the global ecosystem when compared to other major markets. The Australian private credit market is valued at approximately $224 billion market, as of early 2026, representing a 9% year-on-year growth from 2024 (c.$205bn).

To put our market into context, in the United States, which is often considered the undisputed private credit leader in the market, BlackRock’s 2026 Private Markets Outlook suggests their market operates in excess of $US1.9 trillion and has room for further growth. In the US, especially post GFC the private credit is a primary source of mid-market financing, often eclipsing traditional bank lending. So it is perfectly understandable that when collapses occur in the USA, such as the First Brands Group and Tricolour Holdings, regulator scrutiny increases across the globe. After 2007/2008, it is understandable that concern about systemic risk, in particular throughout the US, may be driving a greater level of scrutiny into private credit operations globally. Turning our attention to Europe which is a rapidly maturing private credit market (particularly in the UK and Germany), is a considerable market on its own with the size of this market (AUM estimated) at approximately €450 billion which is over twice the size of our country’s and growing. Like all markets around the world though, this market, too, evolves in response to global implications.

In Australia, though, our market represents only 12 – 14% of total business lending, compared to a significantly larger proportion in other markets like the US. Therefore, with the growth expectations in Australia expected to continue in this space, new private lenders and fund managers will likely commence operations within our country. As such, it is essential that we have a solid foundation of expectations across the country though, in order to preserve what we currently have while also setting up the building blocks up for what private credit could possibly become in Australia.

This gap potentially highlights the immense structural tailwinds that remain for Australian private credit. As the “Big Four” banks continue to retreat from specialised lending due to the manual effort requirements and tailored (non vanilla) solutions requirements. This “funding gap” in Australia, especially across SME and commercial real estate, will no doubt continue to be filled by private capital. It’s key that the Australian financial services sector continues to support these SME and small businesses as they underpin the backbone of this country. The supply of financial support is not the missing piece, it’s how we can ensure borrowers and investors do not fall victim to malicious players or ‘cowboys’ who are more focused on default and recover fees then the essence of supplying the underlying debt to facilitate the SME sector in particular.

A Welcome Observation: Transparency as a Catalyst

Rather than viewing ASIC’s surveillance as an intrusion, a number of key players in the market, including Bowery, have leaned towards embracing these observations as a catalyst for market maturity. ASIC’s report highlighted several “poorer practices” — including regarding opaque fee structures and inconsistent valuation methodologies. Addressing these is expected to raise the water mark across the industry.

For the discerning wholesale investor, these observations should be highly welcomed. Transparency is the bedrock of trust. By standardising how we report margins and fees and how we value assets, the industry works towards de-risking itself. We are moving toward a “private credit done well” framework where the quality of the manager can be more objectively assessed through standardised disclosure. Not only does this create clarity for the operators in this market, but it also ultimately benefits Australian investors.

Lifting the Watermark: A New Standard for Wholesale Funds

One of the most significant takeaways from ASIC surveillance report is the push to increase the “regulatory watermark” across the industry. Wholesale investors, as the definition implies are perceived to be more experienced and knowledgeable when it comes to investments, hence the fewer disclosure requirements expected of wholesale fund managers than those of retail investors. Greater disclosures and reporting obligations, are by design, aimed at protecting the historical ‘mum and dad’ investors. While we know there is a clear distinction between investor classes, there is a benefit to raising the watermark across the entire investor market too.

While meeting ASIC’s expectations increases the compliance burden, it also serves to protect the reputation of the asset class and promotes ‘good practices’ to adhere to for those investment managers committed to this industry. By lifting the floor, we ensure that ‘cowboy lenders’ or — those who entered the space for quick fees without the requisite infrastructure or desire to build a sustainable future — are held to the same high standards as established players.

Experienced private lenders and investment managers like Bowery, for that matter, have been operating in the private credit space for years. This experience brings with it an evolution of operating models, but also a track record that becomes increasingly important when comparing portfolios across the market. Our conversations with investors tells us they want to understand our experience and expertise more which we welcome. It is, after all, this exact knowledge and capabilities that they are relying on to manage their hard-earned money.

Understanding the Divide: Retail vs. Wholesale

While the watermark is rising, it is critical to maintain the distinction that retail and wholesale funds are different models, designed for different audiences.

Wholesale investors value the ability to access senior or mezzanine tranches that may be inaccessible to retail investors. There is a clear difference between these two operating models and one that needs to be preserved. That’s not to say that the wholesale market couldn’t learn a few things from the retail market. It could. However, as the watermark for compliance rises in this country for wholesale private credit, appropriately clear, consistent and transparent practices should be aligned to the particular audiences those funds serve and the underlying needs and risks of the relevant investors.

Strengthening Controls: The Rise (and Growth) of Quality Players

The ASIC Report on private credit acts as a sieve. As controls around valuation governance and conflict management strengthen in response to ASIC’s guidance, the “quality players” are likely to rise to the surface. Bowery is already seeing a “flight to quality” when it comes to veteran and more experienced players in the market moving downstream in the private credit space as their hunt for quality risk-based investments intensifies.

Valuation Independence

Investors are increasingly scrutinising differing approaches to valuations in the market, including different degrees of independence. Many key players in the market are moving away from “internal marks” towards more use of independent third-party valuation reviews, especially for construction and development assets well before the ASIC report was issued to the market.

Independent valuations are key factor for our private credit market. There is however, a growing level of scrutiny being applied to these reports by those reputable players who have built out the experience and capabilities internally to challenge any valuation observations. Our discussions with investors have highlighted wholesale investors are relying even more on these additional capabilities when it comes to concluding on valuation estimates and making their investment decisions.

It seems that we have moved on from blind faith on valuations by independent providers to a more balanced review and scrutiny approach by the key players in the market. One practice we think will continue into the future.

Additional Risk, Governance and Compliance Requirements

Investment managers in the private credit market that have already invested in bolstering and further defining their risk, governance and compliance capabilities are also expected to be in a strong position to make further improvements in response to ASIC’s observations.

Strong risk and compliance capabilities within a business is often a signal of the risk culture present when making investment decisions. A heightened focus on a conservative investment strategy revolving around capital preservation, is something we know our investor value more than chasing higher degrees of investment returns. In our view, those investment managers who have invested heavily within their risk and compliance frameworks are also sending a very clear message to their investors. This highlights how important managing risk and compliance is to the future success of their business models.

Regulatory compliance within wholesale fund markets can no longer be treated as a ‘side of desk’ activity. Nor should it be, if we are to design operating models that truly have investors at the centre of our focus. This ultimately helps to ‘raise the bar’ across the industry. Those who haven’t taken steps in this direction may also start to find the cost of catching up prohibitive.

Conclusion: The Path Forward

The ASIC Private Credit Surveillance report is not a “red light” for the industry but, rather, more of a welcomed ‘spotlight’ for its next phase of evolution. It will be interesting to see what additional observations and regulatory requirements are expected of the industry once the market has fully digested ASIC views and focus areas.

Bowery welcomes the evolution, as have other quality players in the market. By engaging with these observations and proactively lifting the watermark for wholesale funds, we are contributing to the long-term viability of the asset class. Bowery has been operating in Australia’s private credit market since our inception in 2019 and which we look forward to contributing to it over many more years to come.

The divide between retail and wholesale client relationships must remain clear, but the standards of excellence should be universal. As the regulatory dust settles, the managers who prioritise transparency, robust controls, and genuine stewardship of investor capital will be well positioned to thrive and help shape the future of Australian private credit.

In order for Australia’s private credit market to be a global leader, one which other countries can be measured against, we need to embrace evolution and lean in to drive its future in the right direction.

At Bowery, we are all passionate about the market and always happy for a healthy conversation and debate on how best to raise the watermark across the private credit industry as a whole.

We look forward to bringing you future updates on how the developments in our industry will impact you as an investor.