Private credit was once discussed mainly by banks, fund managers, and large institutional investors. It is now available through many investment platforms and superannuation accounts.

In the United States, parts of the market have had a bumpy ride. Australia is different, but it is also entering a more demanding period. Before treating either story as a verdict on the entire category, it helps to understand what private credit is and what role it can reasonably play.

THE BASICS

Private credit is another way of lending money

When a business needs money, it has several choices.

It can:

1. Bring in new owners by issuing shares; or
2. Issue bonds to investors; or
3. Borrow from a bank; or
4. Arrange a loan privately with an investment fund or another non-bank lender.

That last option ‘d’ is private credit.

A private credit fund pools investors’ money and uses it to make loans, or to invest in pools of existing loans. Borrowers pay interest and sometimes other fees. After the fund’s costs, this income can be distributed to investors. If borrowers cannot repay, investors may lose money.

Private credit can include:

• loans to established businesses
• property and construction finance
• vehicle, equipment, and invoice finance
• pools of home, consumer or commercial loans
• higher-risk loans that sit behind other lenders

These can all be called private credit. They do not all carry the same risk.

How is private credit different from bonds and shares?

A useful starting point is to ask whether you are an owner or a lender.

A shareholder owns part of a business and shares in its profits and losses. A successful company can grow substantially, but its share price and dividends can also fall.

Bond and private credit investors are lenders. Their expected return mainly comes from interest and repayment of the amount lent. They usually rank ahead of shareholders if a company fails, although that does not guarantee full repayment.

The main difference between bonds and private credit is how the loan is arranged and valued. Bonds are generally issued more widely. Private loans are negotiated away from public markets and may be held until they are repaid.

That can allow a private lender to negotiate useful protections and deal directly with the borrower. It can also make the loan harder to value or sell.

Private credit is often included within the broader fixed interest part of a portfolio. The name “fixed interest” can be confusing because many private loans have interest rates that rise or fall with market rates. Here, fixed interest describes lending as an investment category. It does not always mean the rate itself is fixed.

How private credit became mainstream

Lending became difficult for banks

Private lending itself is not new.

Businesses have always borrowed from sources other than banks or public bond markets. What changed after the 2007–09 global financial crisis was the scale of the market and the type of institution providing the money.

In response to the crisis, international regulators introduced the Basel III reforms, which required banks to hold stronger capital and manage their funding and liquidity more carefully.

These rules were designed to make banks safer, but they also made some loans, particularly those involving smaller, more highly indebted or less conventional businesses, more expensive or less attractive for banks to hold.

Coming back to the four options available to a company that needs more money, all of a sudden option C (borrow from a bank) was either out or at least more expensive for many companies.

Specialist investment managers stepped into part of that space, raising money from pension funds, superannuation funds, insurers, and other investors to lend directly to businesses.

Low interest rates had many chasing income

Regulation was only part of the story. The long period of low interest rates after the crisis encouraged investors to look for additional income, while borrowers were often willing to pay more for loans that could be arranged quickly or tailored to their needs.

Together, these forces helped turn private credit from a specialist corner of finance into a major investment category. The Reserve Bank of Australia reported that global private credit assets under management quadrupled over the decade to 2023, reaching US$2.1 trillion, with North America accounting for about 70 per cent of the capital raised since 2008¹.

Australia’s market is smaller and has developed differently, but it has followed the same broad shift towards lending funded by investors rather than bank deposits.

WHAT HOLDS UP

The rougher conditions are worth paying attention to

Private credit has had a difficult stretch in the United States.

Some high-profile companies have defaulted. There are concerns about loans to software businesses that may be disrupted by artificial intelligence. Some funds have also received more withdrawal requests than they would normally accept, leading managers to use existing rules to limit withdrawals.

The US Federal Reserve reported that these requests remained manageable, but the episode showed that an opportunity to request money back is not the same as guaranteed access whenever investors want it².

Australia’s market is different.

Australian private credit is smaller and more heavily exposed to real estate, while the US market has more exposure to technology and lower-quality corporate borrowers.

Australia is also beginning to face its own bumpier conditions. ASIC has identified pockets of higher defaults, loans being changed or extended, pressure on liquidity and a risk that some valuations are slow to reflect weaker borrower conditions³. Property development is one area of concern because costs, delays, weak sales and refinancing difficulties can all affect repayment.

Those are genuine reasons to look more closely.

WHAT THE SHORTHAND MISSES

Private credit is a family of investments, not a single risk level

Saying “private credit is under pressure” can mean several different things.

It may refer to:

• loans to highly leveraged US software companies
• an Australian property development lender
• a diversified fund lending to established businesses
• a pool containing many smaller vehicle, mortgage or business loans
• a fund whose loans are sound but whose withdrawal terms are being tested

These are not the same investment.

Calling all of them private credit is a little like calling both a major bank and a speculative mining company “shares”. The label is correct, but it tells you very little about what could go wrong.

Some private credit funds hold a relatively small number of large loans. Others invest across many businesses, industries and types of finance. Some gain exposure to structures containing hundreds or thousands of smaller underlying loans.

The words used to describe the loans also need context.

A senior loan generally means that if a company can only repay some of its debts, the senior loan will be repaid before junior loans are.

A secured loan gives the lender rights over property or another asset, similar to a personal car loan or home loan.

Both can improve the lender’s position. Neither guarantees that the asset will be worth enough, that enforcement will be quick, or that the entire loan will be recovered.

A monthly distribution does not turn the investment into a term deposit either. The income comes from borrowers, capital remains invested, and withdrawals may be delayed or restricted under the fund’s rules.

ASIC is concerned about mislabelling and misuse

ASIC recently conducted a review of private credit and found examples of both better and poorer practices.

It identified funds that clearly described their credit, valuation, and liquidity risks. It also found cases where potentially higher-risk funds were described as suitable for people seeking low risk or capital preservation.

Some product documents suggested that a fund could form a very large “core” allocation. ASIC’s concern was that this may not be appropriate for some funds, given the risks of their particular strategies.

The distinction matters.

A broad fund lending across many borrowers is different from a concentrated strategy financing a handful of developments. A long-term investor is also in a different position from someone who may need the money next year.

The question is not whether the words “private credit” appear on the label. It is whether the loans, the fund’s structure, the risks described to investors and the role assigned to the investment fit together.

Paired with ASIC’s separate releases insisting that superannuation platform trustees and providers should be more active in setting and managing investment holding limits⁴, this has led to private credit concerns getting a lot of recent attention by superannuation trustees in particular.

WHEN IT MATTERS

Timeframe can matter as much as allocation size

It is tempting to say private credit should only ever be a minor supporting investment. That is too simple.

Private credit is one part of the much broader fixed interest universe. That universe can include government bonds, corporate bonds, higher-yield loans, asset-backed finance and other forms of credit. There is no rule requiring every category to receive the same weight.

For an investor who wants a high income, can tolerate a little more risk, and has options for liquidity for years to come, a well-diversified private credit fund could reasonably make up a large part, or even most, of the fixed interest allocation.

For someone drawing heavily on their investments and would need to liquidate these funds in a few years, the conclusion may be different. Ready access, dependable valuations, and the ability to sell investments during difficult markets may carry much more weight.

The same private credit holding can therefore be sensible in one situation and awkward in another.

Concerns are more significant where the investment:

• is concentrated in one borrower, industry or lending strategy
• is being treated as cash or a term deposit
• will likely be needed for spending at short notice
• provides income the investor cannot comfortably do without
• is expected to perform every defensive role in the portfolio

A substantial allocation is not automatically excessive. A small allocation or avoiding the asset class in general is not automatically sensible.

What matters is how broad the fund is, how long the money can remain invested, what risks exist elsewhere, and what the investment is expected to do.

WHAT CHANGES THE ANSWER

Four things matter more than the label

Who has borrowed the money?

An established business repaying a loan from its normal profits presents different risks from a property developer relying on construction, sales, and refinancing.

Pools of vehicle loans, mortgages or invoices have another set of risks again.

How widely is the money spread?

A fund may own many loans but still depend heavily on one industry or economic condition.

Useful diversification means having different borrowers and different sources of repayment, not merely a long list of loan names.

What protects the lender if something goes wrong?

Look at where the loans rank and what security supports them.

Also consider whether the manager has experience spotting trouble early and dealing with borrowers in difficulty. Lending money is the cheerful part. Protecting value when the original plan fails is where the manager earns their keep.

How long can the money remain invested?

Normal withdrawal arrangements tell only part of the story.

Investors should understand whether withdrawals can be delayed, limited or suspended during unusual conditions. Money that may be needed soon generally requires a more dependable exit.

The fund’s reports should make it reasonably clear what it lends to, where its income comes from, and whether problem loans are materially affecting the fund. Investors should not need to become professional credit analysts to understand the broad shape of the risk.

THE WIDER VIEW

Private credit can be substantial without being mistaken for cash

For the economy on the whole, private credit performs a useful economic role. It provides finance to businesses and projects that may not fit the normal requirements of a bank or public bond market. The RBA says the growth of non-bank lending has supported competition and improved access to finance in areas where banks may be less active⁵.

For investors, private credit can provide income and exposure to borrowers that are not found in a conventional bond fund.

The higher income is not free. Investors accept some combination of borrower risk, less visible pricing, and more limited access to their capital.

Private credit can be a large and useful part of fixed interest when the fund is genuinely diversified and the money can remain invested. It still should not be confused with cash, a term deposit, or a guarantee.

The right question is not whether private credit should always be “core” or “satellite”.

It is whether the particular fund is broad and well-managed enough for the role it has been given, and whether the investor can live with the credit and access risks that remain.

IN PRACTICE

Review the investment, not just the category

Recent headlines provide a reasonable prompt to review private credit holdings.

Start with what the fund actually lends to. Then consider how widely its money is spread, the protections attached to its loans, and whether its withdrawal arrangements suit the time available.

Where a broad private credit fund is held for long-term income, the investor has no near-term need for the money and the broader portfolio provides enough flexibility elsewhere, current concerns may support a review without requiring a change.

Where the investment has been treated like a bank deposit, is concentrated in one type of higher-risk lending, or may be needed soon, closer attention is warranted.

How Lume Wealth can help

At Lume Wealth, we look beyond the name assigned to an investment. We meet with investment managers and consider what each investment option owns, how it may behave, when the money may be needed, and how it fits with the rest of a person’s financial life.

If you’re an existing client and would like to learn more, we’re putting together an exclusive client event on this topic in August. Drop your adviser an email letting them know you’re interested.

If you’d like to learn more about what it’s like to work with us here at Lume Wealth, book a chat with us here.

Further reading

• What is private credit? via Moneysmart

References

1. Growth in Global Private Credit, Reserve Bank of Australia, October 2024. ↩︎
2. Financial Stability Report: Funding Risks, US Federal Reserve, May 2026. ↩︎
3. ASIC puts private credit on notice, ahead of 30 June valuations and reporting, Australian Securities and Investments Commission, 18 June 2026. ↩︎
4. ASIC calls platform trustees to account over persistent failures to safeguard super savings, Australian Securities and Investments Commission, 29 June 2026. ↩︎
5. Recent Changes in Credit Markets and Their Implications for Monetary Policy, Reserve Bank of Australa, February 2026. ↩︎