Cracks Appear—Regulatory Scrutiny and Default Risk Test Australia’s Private Credit Boom

The first significant stress signals are emerging in Australia’s A$213 billion private credit sector. ASIC chair Sarah Court has warned of “the first significant cracks,” citing the collapse of major borrowers and redemption restrictions at several funds. The Reserve Bank of Australia’s internal documents conclude that default rates are rising and are expected to keep climbing through the rest of 2026.

The Borrower Collapses That Changed the Narrative

In August 2026, the collapse of Sydney property developer Bathla, owing roughly A$3.4 billion to creditors, triggered redemption freezes across several private credit funds. Bathla’s parent company, Universal Property Group, had A$3.2 billion in liabilities, the majority reportedly owed to private credit funds. The earlier bankruptcy of Jon Adgemis, with A$1.8 billion in borrowings largely from private credit firms, reinforced the pattern. These are not abstract warnings. They are concrete losses that have crystallised in investor portfolios.

Redemption Gates and Liquidity Mismatch

An increasing number of Australian non-bank lenders have restricted investor redemptions as they confront liquidity constraints, including Merricks, Longreach Credit, and Centuria Bass. The redemption gates echo similar actions at major US private credit managers Ares and Apollo over the past year, raising questions about whether the liquidity protections embedded in fund structures hold up under extreme stress. The RBA’s own analyst has flagged uncertainty about whether those protections are sufficient—a caveat that matters for the millions of Australians exposed to private credit indirectly through their superannuation.

ASIC’s Enforcement Sequence

ASIC has moved through a deliberate escalation: commissioned research in REP 814, thematic surveillance of 28 funds, updated conflicts guidance, a compliance catalogue, and now on-site enforcement action. A second tranche of surveillance is imminent, and fund managers who have not benchmarked against the regulator’s ten principles are running out of road. The regulator’s focus spans transparency, fees, governance, conflicts, valuations, liquidity, and credit management—the full spectrum of practices that separate a mature asset class from a loosely supervised lending market.

The Concentration Risk the RBA Fears

The central bank’s concern is not the sector’s absolute size—private credit represents roughly 3 percent of the Australian banking system—but its concentrated exposure to property and construction. A housing downturn or a sustained rise in construction costs could trigger losses that transmit through a tightly clustered lending network. The RBA’s May 2026 memo concluded that default rates are rising and will continue to climb, a view that sits uneasily alongside the sector’s rapid growth from A$35 billion in 2014 to as much as A$250 billion today.