By Kalpi Prasad · 16 October 2026 · 7 min read

The hardest conversation I have had this year was not with a borrower. It was with our own credit team, about a loan that was, by every contractual measure, performing.

The interest was being paid. The maturity was months away. The valuation on file was comfortably above the debt. And yet three of us sat in a room and agreed that if the property went to market that week, we were not confident it would clear the number on the valuation. The leasing market in that pocket had softened, the incentives being offered on comparable space had blown out, and the valuer had been working from gross rent in a world that had moved to net.

So we took a provision. Not a large one, and the loan has since been refinanced out at par, so the provision was reversed. But for a quarter our unit price reflected a loss that, in the end, did not happen. I have thought about that decision a lot since, because the regulator has now published two reports that suggest most of our industry would have made the opposite call.

What zero tells you

I run a private lending group, and Renown Wealth is a wholesale private credit fund, so take what follows with that in mind.

Here is the sentence from ASIC’s Report 814 that I keep returning to. The reviewers found it “surprising” that funds with high exposure to sub-investment-grade borrowers were reporting no impairments at all. They put a number on why: loans of that quality, the equivalent of BB+ down to CCC, carry expected one-year default rates of anywhere from 0.5 to 15 per cent.

Think about what that means in a fund with, say, forty loans. At the bottom of that range you would expect to lose money on one loan every five years. At the top you would expect to be dealing with six problem loans at any given time. A fund that has run for several years with none has either been extraordinarily lucky, extraordinarily good, or has simply not written anything down.

I am not cynical enough to say it is always the third. But Report 820, ASIC’s own look inside 28 funds, found that fewer than half of them had a detailed written policy on credit or impairment. Without one there is no trigger that forces a mark. There is just a judgement call, made by people with every reason to make it generously.

Three ways a loan hides

The reviewers were specific about how a loan ends up in trouble while the fund reports none, and I recognised every one of them.

The first is the valuation basis. If you lend on a construction project, the LVR you quote investors is almost always against the completed value. The reviewers pointed out that a loan at 70 per cent of completion value is often 80 or 90 per cent of cost during the build, which is precisely when things go wrong. On commercial property they found valuations done on gross rent while landlords were handing out incentives of 30 to 50 per cent, which is the problem I described at the start. The valuation is not false. It is answering a different question from the one you need answered.

The second is the extension. A loan that was due in March, pushed to September, then pushed to March again has never defaulted. It has also never been repaid, and the manager has usually collected an extension fee each time. The reviewers described maturities being treated as “renegotiation points rather than repayment dates.” I would describe it as a loan that is quietly becoming equity while everyone looks at the calendar instead of the exit.

The third is capitalised interest. On a construction facility the borrower often pays nothing in cash until the end. The fund accrues the interest, reports the loan as performing, and may distribute against it. For two or three years, no money has actually come in. The reviewers recommended funds disclose the share of their book where cash interest cover is below one times. ASIC’s surveillance found a wholesale fund that kept paying distributions after its loans had defaulted and it had frozen redemptions. I do not know how that fund described its book to investors. I suspect the word “impairment” did not appear.

The room matters

The finding that explained the most, for me, was about who sits in the room.

ASIC found that in most of the funds it reviewed, the people who approved a loan were the same people who later judged whether it needed to be written down, with nobody independent between them. The regulator was careful to say it had not tested any particular valuation. It did not have to. I have sat on a credit committee for a long time, and I can tell you that being asked to impair your own decision is a test of character that most committees will fail more often than they pass, not through dishonesty but through hope.

You do not need a bad actor to end up with an unmarked book. You need a credit committee that would rather wait one more quarter.

That is why the reviewers recommended independent quarterly valuations, and why ASIC has said it will update its guidance for wholesale funds. It is also why we built our own process so that the person who argues for a provision is not the person who wrote the loan. It slows things down. It also means our investors can trust that a number they are shown has survived at least one person whose job was to disbelieve it.

What I would ask

If you are looking at a private credit fund this year, ours or anyone else’s, I would skip past the return target and ask five things.

How many of your loans are past their original maturity, and how many have been extended more than once? What share of your book is not paying cash interest right now? When was the security last valued, by whom, and against cost or completed value? Who decides on impairments, and is any of them independent of the people who approved the loan? And when did your unit price last move, and why?

The answers matter less than the speed and the shape of them. A manager who has those numbers to hand, and who can describe the last loan they wrote down without flinching, is running a book that can take daylight. A manager who answers that there have never been any impairments, and says it as though it settles the matter, has told you something, and it is not what they think.

Our provision this year cost us a smoother chart and a slightly awkward investor update. I would make the same call again. The alternative is a fund where the number investors see is the number we hope for, and I have read enough of ASIC’s work this year to know how that ends.

Sources

1. ASIC (prepared by Richard Timbs and Nigel Williams), Report 814: Private credit in Australia, 22 September 2025. https://download.asic.gov.au/media/z2tnnasb/rep814-published-22-september-2025.pdf
2. ASIC, Report 820: Private credit surveillance: retail and wholesale funds, 5 November 2025. https://download.asic.gov.au/media/q42bgduw/rep820-published-5-november-2025.pdf
3. ASIC, Report 823: Advancing Australia’s evolving capital markets (private credit funds section), 5 November 2025. https://download.asic.gov.au/media/1oppyq1e/rep823-published-5-november-2025.pdf
4. ASIC, Regulatory Guide 45: Mortgage schemes: Improving disclosure for retail investors. https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-45-mortgage-schemes-improving-disclosure-for-retail-investors/

This article is general information only and does not take into account your objectives, financial situation or needs. It is not financial product advice and is not an offer or invitation to invest. Renown Wealth products are available only to wholesale clients as defined in the Corporations Act 2001 (Cth). Investing in private credit involves risk, including the possible loss of capital. Seek independent professional advice before investing.