Private Credit in 2026: Why Structure, Discipline and Experience Matter More Than Ever

Private credit continues to attract growing attention from investors as it offers the potential for attractive income, diversification and capital preservation. But as investor interest has increased, so too has the need to understand what sits beneath the surface.

In a recent interview with Livewire, Privity Credit’s Managing Partner, Ryan Donnar, highlighted several key themes shaping private credit into 2026, and what investors should focus on as the market matures.

Private credit is not one asset class

Private credit is often spoken about as a single category, but in reality it encompasses a wide range of sub-segments; from corporate lending across SMEs, mid-market and large corporate businesses, to asset-backed finance, infrastructure and real estate lending, to name a few.

Each of these segments carries different risk profiles, structures and return drivers. Even within corporate lending, the position in the capital structure, whether senior secured, junior secured or mezzanine, materially changes the risk exposure.

For investors, this means labels matter far less than knowing the underlying structure and security.

Growth brings opportunity… and pressure

Australia’s private credit market is still relatively underpenetrated compared to global peers. While offshore markets see private credit account for up to 70–80% of lending, Australia remains closer to 15–20%.

This gap suggests strong structural growth ahead. However, increased capital flows brings more money chasing deals which can lead to pricing pressure and, in some cases, weaker structures.

In this environment, the ability to originate, structure and actively manage loans becomes increasingly important for protecting investor outcomes.

What “good” private credit looks like

At its best, private credit plays a vital role in supporting the real economy, particularly mid-market businesses that are often underserved by traditional banks.

Well-structured private credit involves:

• Strong security over assets and cash flows
• Tight covenants that allow lenders to act early
• Deep engagement with management teams
• Flexibility to support growth while protecting downside risk

Importantly, good private credit requires ongoing monitoring and the ability to step in when needed to preserve value.

Rethinking risk and return

A common misconception is that higher returns automatically imply higher risk. In private credit, the risk/ return relationship is more nuanced.

Returns in the high single digits or low double digits can be appropriate when supported by strong structures, reliable cash flows and robust security. Conversely, pushing for higher yields without regard to a borrower’s ability to service debt can introduce unnecessary risk.

Another misunderstood concept is default. In public markets, default is often viewed as a binary negative outcome. In private credit, however, well-structured deals anticipate variability where covenants are designed to trigger early engagement. This gives lenders the opportunity to restructure terms and protect capital.

In this context, disciplined intervention and not avoidance of default altogether is often what drives strong outcomes for investors.

The importance of structure in a changing environment

With interest rates and inflation still shaping the economic landscape, the focus for lenders remains on cash flow resilience. This includes evaluating cost pressures, pricing power and the durability of revenue streams.

There are limits to how much debt a business can carry, particularly for growth companies. The goal is not to maximise returns at any cost, but to ensure investors “get their money back”.

Where opportunities are emerging

While parts of the Australian market, such as property lending, have experienced significant crowding, opportunities remain attractive in less competitive areas.

Therefore, Privity focuses on:

• Mid-market corporate lending, particularly to growth businesses
• Asset backed opportunities, including diversified pools of loans such as for equipment or agricultural finance
• Bilateral transactions, where lenders can structure and control the deal directly

These areas tend to require deeper expertise and on-the-ground execution, creating a natural barrier to entry and reducing competitive pressure.

Why control of the loan matters

A defining feature of high-quality private credit is control. This starts with origination – working with trusted advisors and building direct relationships with borrowers – and extends through disciplined structuring and active management over the life of the loan.

This level of control enables lenders to:

• Identify risks early
• Engage proactively with management
• Adjust structures where needed
• Preserve and enhance investor outcomes

Without it, investors may be exposed to risks that only become apparent when it is too late to act.

Transparency and governance are coming into focus

As the asset class grows, regulatory attention is increasing. In Australia, ASIC’s focus has centred on improving transparency, governance and consistency across the industry.

For investors, this reinforces the importance of asking the right questions:

• How are assets valued?
• Are there independent trustees or oversight mechanisms?
• Are financials audited?
• How are conflicts managed?

Strong governance is fundamental to understanding and managing risk.

A disciplined approach to a growing asset class

Private credit is playing an increasingly important role in funding the Australian economy, particularly in segments where traditional lenders are less active.

Private credit is not perfect credit but in the hands of the right manager, with the right structures in place, it can offer compelling outcomes for investors while supporting the growth of businesses that underpin the broader economy.