Dear investors, partners and stakeholders,

I’m writing to share MaxCap’s perspective on ASIC’s Report 820, Private credit surveillance report: Retail and wholesale surveillance, released yesterday.

We believe ASIC’s findings will have a positive and lasting impact on the sector.

A sector with purpose

ASIC’s report reinforces something we’ve always believed: private credit, done well, has a vital role to play in the Australian economy. The sector mobilises long-term capital to fund businesses and projects that may not fit traditional bank criteria but represent sound credit opportunities. This financing supports economic growth, employment and innovation across Australia.

The report acknowledges this contribution while highlighting a variety of practices across key areas including governance and conflicts management, fee and income transparency, portfolio transparency and valuations, credit risk management practices, and terminology. We welcome this focus.

The report also outlines the sector as a whole has more work to do, with opportunities for improvement identified across the industry. We take these observations seriously and are committed to continuous improvement.

Strong alignment

We’re fully aligned with ASIC’s priorities. Not just in words, but through concrete actions – these areas are where we’ve been focusing our enterprise uplift program investment over the past few years – a program developed jointly by Brae and myself as co-founders, alongside our Board of Directors.

What we’ve been building

Let me point to three specific examples that demonstrate our alignment with ASIC’s priorities:

Valuations

Last year, we established a Loan Valuation Committee (LVC), separate from our Investment Committee. This structural separation is fundamental – the people who originate loans should not be the same people who value them.

Our LVC meets monthly to review our watchlist loans, assess potential impairments, and determine whether their value should be re-evaluated. This process receives inputs from our Risk team, Portfolio Management team, and the business – but the LVC makes independent assessments about valuations, provisioning and appropriate actions.

As part of our commitment to continuous improvement, we’re now building an external assurance framework which, among other things, will focus on our loan valuation governance. It will provide independent validation of our processes and further strengthen what is already a robust, independent valuation governance structure.

Conflicts management

Over the past 12 months, we have reviewed our conflicts management framework, working with two top-tier law firms. This involved examining every aspect of how we identify, assess, avoid, manage and disclose conflicts. Following this review, we have strengthened our policy, as well as enhanced our governance protocols and independent oversight.

Portfolio transparency

We’ve materially improved the transparency and detail of our flagship debt vehicle the MaxCap Investment Trust’s (MIT) quarterly reporting. Our portfolio health metrics now provide investors with comprehensive visibility including:

• Credit concentrations by borrower and sector
• Watchlist and non-performing loan disclosures
• Key milestone tracking
• Loan-to-value ratios
• Redemption metrics allowing investors to monitor timelines

This level of reporting reflects our commitment to transparency, which we will continue to review and enhance in line with ASIC’s findings and recommendations.

Industry-wide approach on fees

We agree with ASIC’s position on fees and believe this requires an industry-wide approach for consistency, rather than bespoke fund-by-fund responses. Fee structures across the Australian private credit market vary significantly. Some of this variation reflects genuine differences in strategy, asset class and investor base. But ASIC has identified opacity and misalignment as real problems that need addressing.

We support ASIC’s work to establish consistent disclosure standards that allow investors to compare total manager remuneration across funds. This benefits everyone – it helps investors make informed decisions and creates competitive pressure for managers to demonstrate value for fees charged.

We are reviewing our disclosures to ensure investors have the information needed to make fully informed investment decisions.

Looking forward

As one of Australia’s pre-eminent private credit managers, we were part of ASIC’s surveillance process and have been engaging constructively with the regulator throughout this review. We’re committed to continuing this engagement and our ongoing focus on continuous improvement.

The regulatory environment is evolving – not just in Australia, but globally. Markets in the EU, UK, Canada and Singapore are all moving toward higher standards for private credit. This global alignment is positive. It means Australian private credit will compete internationally with comparable standards, and institutional investors globally will view Australian managers through a consistent lens.

We view this evolution as an opportunity, not a burden. Higher standards create competitive separation, favouring managers with:

• Institutional pedigree and long track records
• Global partnerships bringing international best practices
• Robust governance infrastructure built through experience
• Transparent reporting that goes beyond minimum requirements
• Commitment to continuous improvement, not just compliance
• These are all areas where we believe MaxCap is well-positioned to respond to the evolving regulatory environment.

Our commitment

Managing other people’s money is an immense responsibility. Our investors – whether institutional clients, private investors or those accessing our funds through wealth platforms – deserve transparency, discipline and alignment of interests.

The work we’ve done over nearly two decades demonstrates our commitment to these principles. The strong alignment between MaxCap and ASIC on where the industry needs to go gives us confidence that we’re building for the long term.

Importantly, we’re not just managing capital – we’re helping to better an industry that plays a vital role in Australia’s financing ecosystem. Done with discipline, transparency and proper governance, private credit can help to deliver reliable income and capital preservation for investors while supporting economic growth.

That’s the standard we strive to meet. That’s the future we’re committed to building.

We welcome your feedback. Our team is available to discuss any aspect of our approach, our alignment with ASIC’s priorities or how we’re positioned for the regulatory environment ahead.

Thank you for your continued trust and partnership.

Wayne Lasky
Executive Chairman & Founding Partner
MaxCap Group

In a recent edition of HA Housing Insights, they spoke with Bruce Wan, Head of Research at MaxCap, to explore current market conditions, emerging trends and the key forces shaping Australia’s housing outlook.

What are your observations of the current market and emerging trends?

Amid all the disruptive economic events unfolding abroad, it is even more important for us to separate the noise from the signal and focus on the fundamental drivers that matter for the Australian housing market. In this context, we are actually seeing brighter prospects for the Australian housing market in 2025 and beyond.

Housing demand remains exceptionally strong. While population growth and immigration flows are likely to ease from record levels, we are still contending with a pace of housing demand that is running strong by historical standards and that is clearly outpacing housing supply. In turn, this persisting state of housing undersupply is supporting sustained growth in prices and rents.

The outlook for housing construction is improving. The big challenges for builders in 2022 – runaway cost escalations and high borrowing costs – are clearly subsiding in 2025. Building material cost inflation is much more muted. At the same time, the Reserve Bank is finally cutting official rates, improving developer sentiment and project feasibility. More rate cuts are being priced over the remainder of 2025.

Certainly, there are massive regional differences across the country. Housing markets in Perth, Adelaide and Brisbane are showing considerably stronger price gains, on the back of their firmer local economies. Meanwhile, the housing market in Melbourne is clearly lagging this cycle, weighed down by the lagging economic rebound, additional state taxes and weaker investor sentiment.

With a looming federal election, the political landscape is steadily becoming more accommodating. Indeed, there is increasingly vocal voter pressure to address housing availability and affordability. Consequently, there is bipartisan support for lifting residential housing construction, both at the state and federal levels of government, with a focus on value-adding infrastructure and streamlining approvals.

What are the key challenges you are seeing in residential projects? What are the solutions?

After a difficult period for builders from 2022 to 2024, the biggest challenges for the housing construction sector – material costs and interest rates – are looking less daunting. In 2025, costs are stabilising, borrowing costs are edging lower, as developer profit margins slowly recover. That said, there are still many lingering challenges in terms of labour costs, skilled worker shortages and access to key contractors, but the broad outlook for housing construction is clearly improving.

While developers are keen and ready to go in 2025, the drawn-out planning process remains a key hurdle preventing a quicker supply response to Australia’s housing shortage. While federal and state governments have all made ambitious targets for housing delivery (1.2 million homes nationally by 2029 and 2.2 million homes in Victoria by 2051) and there are well-intentioned initiatives to reduce approval timeframes, there is still a lot of work ahead to reform the current planning and approval process.

Securing the funding to do this work is a critical factor for developers. From a project financing perspective, there is a big sustained structural shift towards non-bank lenders. Banks are still being mandated by the Australian regulator to assign the highest risk weightings for development and construction, particularly for non-conforming projects. In turn, borrowers are progressively shifting from bank to non-bank financing to access more timely and flexible funding for their projects.

Is there any appetite for investors to invest in affordable housing?

Left to pure market forces, most residential developers are often more inclined to develop luxury (rather than affordable) housing, due to better profit margins. Simply, affordable housing is harder to do, as it targets a lower price point and requires keener discipline on costs.

Certainly, there is an increasingly urgent call for more affordable housing, particularly as housing affordability approach their cyclical extremes, reflecting the combination of rising house prices, elevated mortgage interest rates and subdued real household income growth.

In areas where we have seen good progress on affordable housing development, these projects are often incentivised by additional factors, either with direct government funding, public subsidies or improved development metrics like floor space ratios or building height.

From an investor perspective, some institutions have dedicated pools of capital targeting ESG strategies, with affordable housing sitting squarely in their “S” or social component. In other words, affordable housing strategies are often able to tap additional pools of ESG capital from some of these global institutional investors.

Ultimately, developers and investors are motivated by expected returns. In this context, improving the terms of these funding arrangements, either with greater affordable housing subsidies or improved development parameters, can be the vital catalyst needed to drive greater development activity in the affordable housing sector.

Lower interest rates are definitely a boost to the outlook. Residential construction is one of the most rate-sensitive sectors in the Australian economy and rate cuts in early 2025 (and market expectations for more) will provide a handy uplift to activity. At the same, volatility and uncertainty in global share markets – amid an unfolding trade war – are encouraging more investors to keep their capital closer to home, especially when there is a clear, profitable opportunity to address the local housing crisis.

Is MaxCap Group involved in any projects in the affordable housing/build-to-rent space? If so, what makes these projects attractive?

MaxCap is one of the largest and longest-established non-bank lender in the country, with a sizeable portion of the $7 billion loan book dedicated to residential construction projects. At any given time, there are multiple developments that are build-to-rent or carry some social housing component.

From a lender’s perspective, we are keen to support the living sector in all its many forms, whether that is build-to-sell, build-to-rent, land subdivision, affordable housing, coliving, student accommodation or hotels. In Australia, the bulk of this opportunity set still revolves mostly around traditional build-to-sell apartment blocks. The overall share of the build-to-rent market is still relatively tiny, but it is growing rapidly. The affordable housing component is becoming a little more prominent, particularly within larger residential projects, but it is still mainly dictated by the degree of subsidies and incentives on offer.

For many affordable housing and build-to-rent developers, the biggest challenge for them is the competitive construction landscape. Indeed, build-to-rent projects are disadvantaged in their ability to bid for sites. Build-to-sell developers have better capacity to pay and better liquidity overall, particularly as they can pre-sell their product piecemeal. Build-to-rent investors often need to accept lower returns across a longer timeframe, which requires an uncommon form of patient investment capital. Meanwhile, the generally smaller scale of many affordable housing projects – sitting below the minimum deal size thresholds – preclude them from accessing the major lenders.

Ultimately, the solutions to these challenges will need to come from policymakers. Given a clear and urgent need for all types of housing, especially affordable rentals, there is a strong economic case to be made for better support to these affordable and rental housing projects.

From our experience, frequently the capital stack for social and affordable housing projects does not add up resulting in projects falling over. Can you elaborate on this and why this is happening?

The fundamental issue remains, social and affordable housing projects are less profitable on a purely commercial basis. There is a persistent gap in returns between affordable housing and regular development projects, reflecting the lower price points and the more stringent restrictions on costs. For social and affordable housing projects to get off the ground, it is always necessary to bridge that returns gap with some form of subsidies or incentives.

With a looming federal election before May 2025, some of these schemes are up in the air. For example, the future growth prospects of the $10 billion Housing Australia Future Fund dedicated to social and affordable housing will likely depend on the outcome of the federal election. The cloud of uncertainty that hangs over these programs does not help developer confidence in this space.

What incentives would make these projects more attractive to developers and investors?

For the policymakers, developers and investors in the affordable housing sector, there is generally a good understanding of what is needed to accelerate activity in this sector. This includes greater direct funding or indirect subsidies for developers (to close the returns gap), streamlined approval processes (to get projects up and running) and more generous floorspace and height parameters (to incentivise this segment).

In our view, quicker approval processes would clearly be the top catalyst for incentivising more affordable housing projects right now. Giving a ‘priority lane’ to approving affordable housing projects (or mixed use projects with a significant affordable housing component) within general planning queues would be a substantial carrot for developers. Of course, saying all of this is relatively easy, but actually implementing these enticements have proven to be much harder.

Read full article here