Regulators Target Private Credit Valuations: DOJ Investigates BlackRock TCP Capital and Australia's ASIC Orders Valuation Overhaul

Regulators Target Private Credit Valuations: DOJ Investigates BlackRock TCP Capital and Australia's ASIC Orders Valuation Overhaul

The subjective, infrequent valuation of private credit assets is facing a coordinated global regulatory assault. While private credit managers have long defended their "held-to-maturity" amortized cost or modeled valuations as a way to reduce public market volatility, regulators warn that these marks are lagging economic reality and obscuring rising credit stress. In mid-2026, enforcement actions and sweeping surveillance by the U.S. Department of Justice (DOJ) and the Australian Securities and Investments Commission (ASIC) are threatening to open Pandora's box for private credit valuations worldwide.

Australia's ASIC Issues Valuation Ultimatum (June 2026)

On June 18, 2026, ASIC put Australia's A$200 billion ($141 billion) private credit market on notice, ordering funds to immediately refresh their June 30, 2026 asset valuations to reflect current macroeconomic upheaval.

Following an eight-week voluntary survey of 22 managers covering 52 funds and A$76 billion in AUM, ASIC warned of a severe mismatch between reported asset values and underlying economic conditions:

• Valuations Lagging Reality: ASIC stated that weaker borrower conditions, particularly in real estate and construction, are increasing the risk that reported valuations are artificially inflated. The regulator warned that managers are waiting for formal defaults before marking down loans, which distorts fund performance.
• Audit Gaps and Inconsistent Definitions: A review of superannuation fund (RSE) audits revealed that auditors failed to challenge external manager valuations and applied excessively high materiality thresholds¹. Furthermore, funds are using inconsistent definitions for arrears, impairments, and provisioning, making cross-fund comparisons impossible.
• Enforcement Action Looming: ASIC declared that poor practices in private credit are a top 2026 enforcement priority. The regulator has active surveillances underway across both retail and wholesale funds, with multiple formal enforcement investigations active.

"Australia’s private credit sector is on notice, with ASIC calling on funds to ensure their 30 June asset valuations are current, accurate and grounded in realistic assumptions... weaker borrower conditions are increasing the risk that reported valuations do not fully reflect underlying economic conditions... ASIC will act where conduct falls short."

The intensity of the Australian crackdown is underscored by reports from Capital Brief indicating that ASIC's surveillance has included office searches of private lenders, with officials warning: "We will throw everything we have at this."

The DOJ and SEC Investigation into BlackRock TCP Capital (TCPC)

The Australian crackdown mirrors aggressive enforcement actions in the United States. Earlier in 2026, the U.S. Attorney for the Southern District of New York (SDNY) and the SEC launched a joint investigation into the valuation and pricing practices at BlackRock TCP Capital Corp (TCPC), an exchange-traded business development company (BDC).

The probe centers on whether TCPC artificially inflated the values of non-accrual and distressed loans in its portfolio to maintain its reported Net Asset Value (NAV) and collect higher management fees. In private credit, management fees are typically calculated as a percentage of gross assets (including leverage), creating a powerful, misaligned incentive for managers to delay marking down troubled assets.

The Valuation "Pandora's Box"

The core conflict in private credit valuations is the reliance on Level 3 inputs under GAAP accounting—meaning valuations are based on unobservable, manager-modeled inputs rather than active market pricing.

As regulators in the US, Europe, and Australia step up their scrutiny, the industry is facing a forced transition toward greater transparency. If managers are compelled to adopt more realistic, market-reflective marks:

1. NAV Declines: BDCs and evergreen funds will see automatic declines in their reported NAVs, which could trigger further retail investor redemption runs.
2. Covenant Breaches: Lower asset values will push up leverage ratios, potentially breaching fund-level debt covenants and restricting credit lines from commercial banks.
3. Fee Compression: Write-downs will directly reduce the asset base upon which management fees are collected, squeezing manager profitability.