Private credit is one of the most talked about asset classes in Australian wealth management. Most of that conversation is about yield i.e., the headline return above cash. But framing private credit purely as a yield play misses the more important story: a structural shift in how the economy is funded and who is doing the funding. Understanding that shift, by defining what separates well run from poorly run credit investments, is becoming one of the most valuable insights an adviser performs for clients seeking reliable income.
The public market is shrinking. The economy is increasingly private.
Mention “investing” and most Australians have been trained to think about the share market. Yet listed equities represent less than half of the economic value added in the economy. The ABS figures recorded 52,840[i] Australian businesses with annual turnover of $10 million or more, yet fewer than 2,000 companies are listed on the ASX[ii] and that gap is widening, not closing.
The number of ASX-listed companies peaked at around 2,158 in 2022 and had fallen to roughly 1,837 by June 2026 representing a decline of about 15% in under four years. ASIC has formally acknowledged the trend, pointing to fewer new listings, more delistings and “rapid growth in private markets allocation” as structural shifts now requiring regulatory attention[iii]&[iv]. Meanwhile, the private economy keeps expanding: the ABS counted more than 2.7 million actively trading businesses at 30 June 2025, up over 66,000 in a single year.
The takeaway for investors is that the vast majority of Australian businesses that need capital to grow are private and increasingly they want to borrow privately, too.
Banks stepped back. Private credit stepped in.
The trend has evolved globally over the last three decades and has accelerated since the global financial crisis after which banking reforms under the Basel III framework were implemented in Australia through the Australian Prudential Regulation Authority. These reforms increased capital requirements and generally made certain types of lending more capital intensive for banks. Banks thus retreated from business lending especially the mid-market where the wallet size of non-lending income is relatively small.
Banks’ operating models, driven by cost cutting, meant that their relationship managers are no longer skilled-up and too thinly spread to service the bespoke needs of mid-market clients.
Lastly, to process the large volume of loans, the credit policies of the banks have been aggressively standardised, with capital customisation service focused on large clients. That left mid-market creditworthy businesses underserved and gave non-bank lenders an opportunity to fill the gap. Australia’s trillion-dollar superannuation savings pool, hunting for yield and diversification, helped fund the expansion.
The result is a genuinely large asset class. Globally private credit is estimated at around US$3.5 trillion[v] today and is forecast to approach US$4.5 trillion by 2030. In Australia, ASIC estimates the market at roughly $200 billion[vi]. For many borrowers, private credit is not a last resort but a preferred source of capital because it offers:
These are structural changes in dispensation of credit and not a temporary dislocation and offer durable advantages to the borrowers.
Australia has a vibrant ecosystem of private credit fund managers.
Source: Private Credit in Asia 2.0, AIMA (2025)
Manager due diligence and selection is thus a critical step especially given we see market dispersion over the next 12 months. Managers with well-defined credit strategies and products, consistent performance and through the cycle experience are expected to perform strongly.
Why advisers and their clients are paying attention.
For an income-focused portfolio, private credit offers a combination that is difficult to replicate in listed markets:
Returns come primarily from interest paid by borrowers under loan agreements, not from the listed company’s decision to pay distributions (or not).
Most loans are priced over a base rate, so income tends to move with interest rates rather than being eroded by them – a useful counterweight to fixed interest.
Well-structured loans sit higher in the capital structure, backed by the lender’s claim on cashflows and assets; and an ongoing covenants compliance obligation on the borrowers, thus providing a layer of protection that equities do not.
Returns are driven by individual borrowers’ performance, giving genuinely low correlation to the Australian listed market’s concentration in banks and miners.
The catch: private credit is not one thing.
Private credit is not a homogeneous product.
ASICvi estimates the key components of Australian private credit market as:
A significant portion of the private credit market is thus real estate related lending. Advisers would benefit from seeking information from a private credit manager regarding the percentage of their investments in real estate during due diligence. This will help to bottom out the actual real estate sector concentration across their clients’ portfolios if advisers were to allocate to such managers.
Another useful lens is direct versus allocated/secondary loans. An experienced private credit manager directly originating, structuring and risk managing its loans has better control on lending than a manager participating in a large syndicate or buying loans in secondary markets. Control becomes crucial, should the borrower underperform, and typically has a direct correlation to the ability of the manager to take corrective action to preserve the quality of the loan and hence investor capital.
In September 2025, ASIC published REP 814, the most detailed public review of the Australian market to date. ASIC’s central message was nuanced: private credit “done well” plays a valuable role in the economy, complementing banks and public markets. But it also drew a sharp line between the institutional end of the market (which generally demonstrates sound governance and transparent valuation and fee practices) and segments where practices “do not compare favourably against international practice.” Among the concerns it flagged were the following:
Real estate lending represents the largest sector of Australia’s private credit market, roughly half of the estimated A$200 billion market, with a concentration in higher risk construction and development lending.
Inconsistent disclosure of portfolio mix, impaired loans and related party transactions.
Closer inspection in relation to frequency, independence (or at least reviewed by independent third party) and the basis of valuation (especially for real estate lending); and recognition of impairment.
Fee structures that include borrower-paid fees retained by the manager, sometimes worth several times the disclosed management fee, and special purpose vehicles used to capture excess margin for the manager, not the investor.
Inconsistent use of terms like “investment grade”, “senior” and “LVR” that can understate true risk, and, in some real estate funds, distributions are paid from capital rather than income.
None of this is a reason to avoid the asset class. It is a reason to educate yourself and look hard at how and who is managing the money.
How advisers can separate quality from risk.
In a shrinking, concentrated listed market, the structural case for private credit is compelling but the returns won’t be evenly distributed. The winners will be the advisers and clients who treat manager selection as a priority and insist their credit manager looks and operates like the institutional end of the market that ASIC praised, regardless of which investor segment the fund is offered to.
A practical due diligence checklist, drawn directly from ASIC’s “good practice” benchmarks:
Where Privity fits.
Institutional grade quality is what we aim for.
Privity Credit is a specialist manager focused on direct lending to mid-market corporates across Australia and New Zealand, providing growth and acquisition capital through structured, secured and asset backed loans. Over a 12+ year history and a team whose experience spans both favourable and difficult markets, we have deployed more than A$1 billion, with our earlier closed funds achieving their target returns and double-digit IRRs.
Two design choices matter most through a credit lens.
Unlike many Australian private credit managers, we exclude property development and construction, instead building a diversified portfolio across industries, loan types and borrowers. The absence of property exposure directly addresses the single largest risk ASIC identified in the market.
We have an independent expert on the Valuation Committee to ensure the people managing the loans are not the people valuing them.
The funds are available to wholesale investors on a growing list of wealth platforms and we report transparently because we believe that is what allows advisers to allocate with confidence.
What this means for portfolio construction moving forward.
The migration of capital into private markets, and in particular into private credit, is one of the most significant shifts underway in markets today. Much of the attention is on the yield. The more enduring advantage for advisers will come from choosing the managers built to deliver it reliably, transparently and through the cycle.
This article is general information only and does not constitute financial advice or an offer of any product. It is intended for persons who qualify as wholesale clients under section 761G of the Corporations Act 2001 (Cth). Past performance is not indicative of future performance.
[i] https://www.abs.gov.au/statistics/economy/business-indicators/counts-australian-businesses-including-entries-and-exits/latest-release
[ii] https://www.asx.com.au/markets/trade-our-cash-market/directory
[iii] https://www.asic.gov.au/regulatory-resources/find-a-document/reports/rep-823-advancing-australia-s-evolving-capital-markets-discussion-paper-response-report/
[iv] https://www.asic.gov.au/regulatory-resources/find-a-document/reports/rep-807-evaluating-the-state-of-the-australian-public-equity-market-evidence-from-data-and-academic-literature/rep-807-evaluating-the-state-of-the-australian-public-equity-market-evidence-from-data-and-academic-literature-html-version/
[v] https://www.aima.org/article/press-release-strong-growth-sees-private-credit-market-reach-us-3-5-trillion.html
[vi] https://download.asic.gov.au/media/z2tnnasb/rep814-published-22-september-2025.pdf
Privity Credit acknowledges and pays respect to the traditional owners of the land on which we meet and work across Australia; we pay our respects to the elders, past, present and emerging. We encourage our staff and clients to join us wherever they are in Australia by being informed about whose land they are on and paying their respects.
The information in this website (the information) has been prepared by Privity Credit Pty Limited (ABN 64 622 234 315) (‘Privity Credit’ or ‘we’ or ‘us’ or ‘Privity’). Privity Credit is a corporate authorised representative (CAR 1269259) of Sandford Capital Pty Limited (ABN 82 600 590 887) (AFSL 461981).
This Information is for general information only and is not an offer for the purchase or sale of any financial product or service. The Information has been prepared for investors who qualify as wholesale clients under section 761G of the Corporations Act 2001 (Cth) (Corporations Act) or to any other person who is not required to be given a regulated disclosure document under the Corporations Act. The Information is not intended to provide you with financial or tax advice and does not take into account your objectives, financial situation or needs. Although we believe that the Information is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by Sandford Capital, Privity Credit or any other person. To the maximum extent possible, Sandford Capital, Privity Credit or any other person do not accept any liability for any statement in this Information.
