Setting Up a Private Credit or Mortgage Fund

What these funds are

A private credit fund lends money to borrowers outside the banking system. A mortgage fund is a private credit fund whose loans are secured by mortgages over real property. Investors pool their money, the fund makes the loans, and investors receive the interest less the fund's costs and fees. Many funds lend for short terms, for example 6 to 24 months, to property developers and small businesses that banks will not fund quickly enough.

The regulator estimated the Australian private credit market at about $200 billion in 2025, with about half of it related to real estate.

Why the regulator is concerned

In 2026 the Australian Securities and Investments Commission (called the regulator on this page) issued interim stop orders against several private credit and mortgage funds offered to retail investors, including funds run by Australian Secure Capital Fund and a fund distributed by Fidante Partners. Its concerns were:

• target market determinations that described the fund as suitable for investors seeking capital preservation, when the loans carried real risk of loss;
• withdrawal terms that did not match the time investors might need to wait to get their money back;
• disclosure that did not explain the cost of leaving the fund or the state of the loan book;
• valuations and loan ratings that were not independent or not current;
• fees, margins and conflicts of interest in wholesale funds, including loans to parties connected to the manager.

The regulator has said that poor practice in private credit is an enforcement priority for 2026 and that it will act quickly where it finds disclosure problems.

What a well run fund looks like

• Structure. A registered managed investment scheme for retail investors, with a responsible entity that holds the right authorisations, or an unregistered scheme for wholesale investors only, with a licensed trustee. The choice decides most of what follows.
• Licence. The responsible entity or trustee needs an Australian Financial Services Licence with authorisations to operate the scheme and deal in its interests. If the fund lends to consumers, it also needs an Australian Credit Licence.
• Lending policy. Written rules on loan to value ratios, security types, borrower assessment, valuation at the time of the loan and at intervals, concentration limits and arrears management.
• Valuation policy. Independent valuations at the time of each loan and at set intervals afterwards. The regulator has said valuations must be current, accurate and based on realistic assumptions.
• Liquidity. Withdrawal terms that match the loan terms. A fund of 12-month loans cannot promise withdrawals at call. The product disclosure statement and the target market determination must say the same thing.
• Related party rules. Loans to parties connected to the manager must be disclosed, approved at arm's length and limited. Many recent fund failures involved related party lending.
• Disclosure. A product disclosure statement or information memorandum that describes the loan book, arrears, the fee structure, the cost of withdrawal and the risks in plain language.
• Compliance plan and committee. For a registered scheme, a compliance plan that covers lending, valuation and liquidity, and a compliance committee where the law requires one.
• Capital. From 1 July 2027 responsible entities must hold higher net tangible assets. A new fund should plan for the new thresholds now.

How I help

I project manage the set-up from start to finish. That includes advising on the structure, preparing or varying the licence application, instructing solicitors on the constitution and compliance plan, preparing the disclosure document and target market determination, and arranging the auditor, custodian and fund administrator. After launch I can act as responsible manager (if I have the availability) or compliance committee member.

Call me on 0418 998 677 to discuss your fund.

This page contains general information only. It does not take into account your objectives, financial situation or needs, and it is not financial product advice.