By Nick Adams, Sales Director, Fund Services, Australia
The Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) are focusing more heavily on private credit funds and other private market investment vehicles. An independent external trustee is now the clearest way to demonstrate robust oversight and independent governance.
ASIC’s latest surveillance confirms both the growth and the gaps in private credit. From October 2024 to August 2025, the regulator reviewed 28 private credit funds (listed, unlisted, retail and wholesale), flagging uneven practices in disclosure, transparency, conflicts, valuations, liquidity, and credit risk. ASIC’s report also highlights the market’s speed of expansion (currently estimated at ~A$200bn in assets under management) and signals renewed focus on fees and margin structures, conflicts and distribution into 2026.
On the superannuation side, APRA found that 12 of 23 Registrable Superannuation Entity (RSE) licensees needed material improvement in either valuation governance or liquidity risk frameworks, and reiterated that the updated SPS 530 now demands tighter board oversight, independent challenge and stronger stress-testing.
What this means for private credit funds moving into 2026 is that institution-grade governance has become the new baseline. Supervisors want stronger guardrails to protect consumers in an environment where private credit is growing fast, often in higher-risk lending segments such as development finance and construction.
Key risk areas that regulators keep finding
- Opaque calculations: Fee structures and lending margins that aren’t crystal-clear to investors
- Valuation discipline: Over-reliance on manager models and weak or inconsistent override protocols
- Liquidity mismatch: Redemption terms that don’t match asset liquidity, limited stress testing, and gating playbooks
- Related-party lending: Thin documentation, weak independent sign-off, and insufficient conflict frameworks
- Inadequate investor reporting: Particularly around arrears and non-performing loans (NPLs)
- Target market determinations (TMDs): Design and distribution obligations (DDO) practices that don’t match how the product is actually sold
As a result, the baseline has shifted. Even wholesale-only funds are expected to operate with institutional governance, independent oversight, board-approved policies, and audit-ready documentation. Allocators are already using ASIC’s findings to sharpen their operational due diligence (ODD) checklists, so strong credit skills alone won’t be enough.
Five reasons why external trustees are essential in this new environment
Managers who can demonstrate independence and rigor up front will clear checks faster and widen distribution. Those who can’t should expect longer diligence cycles, more conditional approvals, and a watchful eye from regulators.
Here are the top five ways an external trustee helps close the gap:
1. Independent governance
An external trustee separates fiduciary oversight from day-to-day investing, delivering:
- A board and compliance function not employed by the manager
- Independent review of related-party transactions, valuation overrides, and liquidity events
- Standing authority to escalate and enforce policy breaches
- Structural independence and accountability that’s obvious to regulators
2. Alignment with ASIC and APRA expectations
A credible third-party trustee brings documented, board-approved frameworks in the exact areas supervisors are testing:
- Valuation governance (committee, hierarchy, model oversight, fair-value reporting)
- Liquidity frameworks (triggers, gates, notice periods, stress testing)
- Conflicts and related-party approvals
- Fee and margin transparency in disclosure packs
- DDO/TMD controls and marketing sign-off
Regulatory expectations are explicit: APRA’s review ties outcomes to SPS 530, and ASIC’s REP 820 lists specific focus areas and notes further work into 2026 across fees and margins, conflicts and distribution.
3. Stronger disclosures and investor protection
External trustees pressure-test what investors actually read by reviewing offer documents, product disclosure statements and information memorandums to ensure plain-language fee disclosures, clear use-of-proceeds, transparent valuation methods, and sensible redemption design. They also check TMDs and market materials for alignment between the stated target market and how the product is actually distributed. Finally, external trustees have the infrastructure and expertise to standardise quarterly packs so arrears NPLs, restructures, risk migration and liquidity metrics are reported consistently.
Stronger disclosures directly address ASIC’s findings on transparency and reporting, improving auditability during surveillance or regulatory reviews.
4. Attractive to institutional investors
Super funds, insurers and large global allocators increasingly expect an independent trustee as part of their due diligence standards. By hiring an external trustee, funds can accelerate allocation decisions by removing common obstacles before they become problems and address objections around conflicts, governance gaps or insufficient oversight.
5. Faster allocations and better ratings for more commercial upside
Research houses and rating agencies such as Lonsec, Zenith, SQM and Morningstar increasingly run ODD playbooks that heavily weight governance, oversight, process and transparency – all areas where a trustee model can lift qualitative scores and widen distribution. When a credible independent trustee sits over the structure, investment committees can clear recurring friction points faster and ratings analysts have the evidence they need to award stronger qualitative scores.
For private credit funds, that means faster diligence cycles, broader distribution and better ratings outcomes, turning good credit work into an allocation-ready fund without adding drag to the pipeline.
Frequently asked questions
What is an external trustee?
An external trustee is an independent fiduciary that oversees a fund’s governance separate from the manager. They review valuations, liquidity, conflicts, disclosure and DDO/TMD, and they document board and compliance decisions for regulators and investors.
Is an external trustee required for wholesale private credit funds in Australia?
An external trustee isn’t always required by law, but ASIC/APRA expectations and investor ODD now treat independent oversight as a baseline, especially for private, illiquid credit with valuation and liquidity complexity.
How does an external trustee help with SPS 530?
An external trustee helps by establishing board-approved valuation and liquidity frameworks, running independent challenge, maintaining minutes and override logs, and ensuring stress testing and triggers are documented and followed.
Will a trustee slow my fundraising?
Done right, an external speeds up fundraising. Independent documentation reduces investment committee objections, improves ratings outcomes, and shortens time from DDQ to approval.
The outlook for Australian private credit
Australia’s private credit market is bigger, faster and under closer supervision than at any point in its past. ASIC and APRA’s recent reports make the direction of travel impossible to ignore: independent, well-documented governance is rapidly becoming the standard. An external trustee helps you clear that new regulatory bar with ease, all while lifting investor confidence and keeping allocations moving.
How we can help
AMAL, part of IQ-EQ, acts as an external trustee for wholesale and retail structures. Whether you’re launching a new vehicle or upgrading an existing one, our team can help you tailor a trustee model to your strategy, scale and distribution.
Get in touch with our team today to learn more.
