Controlling the lend: Why experience matters most in direct corporate lending

For wealth managers and financial advisers, it is critical to understanding how lending control works and why it can materially improve the risk–return profile for clients. Not all private credit strategies are built the same. And not all lenders have the depth of experience required to shape outcomes when conditions change.

This article explains how direct corporate lending really works, why “bad weather” moments can produce some of the strongest returns and how Privity’s disciplined, hands-on approach helps protect client capital while creating opportunities for enhanced performance.

In private credit, control begins long before a loan is funded. It starts with where the loan comes from.

At Privity, loans are sourced directly through long-standing networks built over decades of working with founders, business owners and corporate advisers across Australia. This trusted origination pathway means Privity is not competing in crowded brokered markets or relying on opaque information. Instead, the team engages early, builds transparency from day one and evaluates borrowers with first-hand insight.

Once a loan is selected, disciplined structuring is the next layer of control. This is where the lending terms designed to protect client capital are established:

• Sensible leverage
• Clear covenants and reporting requirements
• Strong security packages
• Appropriate pricing relative to risk
• Aligned incentives for the borrower
• Asset buffers
• Structuring

For many lenders, this is the end of the story. For Privity, it’s just the beginning. The real differentiation comes from the ongoing management of every loan throughout its life.

Corporate loans rarely travel in a straight line. Businesses evolve, markets shift and unexpected conditions emerge. For wealth managers unfamiliar with private credit’s inner workings, it can be surprising to learn how much influence an experienced lender can exert when circumstances change.

Privity’s active approach includes:

• Regular borrower conversations
• Detailed financial analysis
• Monthly reporting
• Site visits and operations reviews
• Board observer rights where appropriate

This ongoing dialogue means Privity sees any potential issues early, before the situation is irredeemable. More importantly, it allows the team to step in constructively, reshaping the loan to reflect new realities.

It is natural for advisers to assume that the best returns in private credit occur when everything runs according to plan. But experienced lenders know that some of the strongest outcomes are created in bad weather, not on sunny days.

When a borrower breaches a covenant, misses a target, or faces a temporary setback, it triggers a moment of negotiation and a moment of opportunity. Instead of viewing these moments as a risk to be feared, Privity has the experience to treat them as a crucial part of the value creation process.

With decades of experience across the dot-com crash, the GFC and multiple tightening cycles, the team has developed a disciplined playbook that allows them to:

• Tighten the structure and enhance investor protections
• Increase pricing to reflect elevated risk
• Secure additional collateral or improve the ranking of existing security
• Reset incentives to ensure borrower/ investor alignment
• Add equity participation (via warrants) in select scenarios to maximise upside
• Guide borrowers through turbulence toward financial health.

It is a combination of expertise, relationship management and calm decision-making under pressure, qualities that cannot be replicated without years of hands-on experience.

For wealth managers and advisers, the key message is that a loan that doesn’t go to plan is not a failure. In the hands of an experienced credit team, it can be the source of some of the most attractive risk-adjusted returns.

The private credit market has expanded quickly and with it has come a wide range of strategies – some highly passive, some reliant on intermediaries and others focused solely on yield without considering structure or control.

For advisers constructing diversified portfolios for clients, distinguishing between private credit managers is essential.

Privity’s approach stands apart because we:

• Source directly from trusted contacts, not auctions or brokers.
• Negotiate discipline into every loan at the outset.
• Maintain deep visibility through the entire life of the loan.
• Bring decades of experience managing through real crises — and working out challenging loans without losing capital.

We see volatility not just as a threat, but as a chance to strengthen the investment case.

In short, we control the lend, not just the paperwork.

Privity Credit doesn’t go looking for problematic borrowers. However, circumstances can always change after a loan is written and the best laid plans can come undone. This is why it is private credit not perfect credit.

Private credit is not a passive asset class for the private credit fund manager. It is an actively managed partnership between borrower and lender and one where experience matters most when conditions turn.

In fact, a research paper that analysed the performance of fund managers states “We find, consistently for both the holdings-based and the trading-based tests, that the boom-based experience has no power to predict returns, while we continue to find large and significant effects for the baseline measure based on negative industry shocks. The results… thus suggest that learning occurs predominantly in bad times, and not in booms.”¹

For wealth managers and financial advisers, partnering with a lender that has been tested in real storms is essential. Sunny days are easy; it’s in the gusts and downpours where skill and experience based discipline, judgement and control protect the downside and maximise the upside.

Privity Credit’s philosophy is simple: Protect the capital, shape the outcome and use every moment – good or bad – to work in the investor’s favour.

That’s the power of controlling the lend.

¹Kempf, Elisabeth and Manconi, Alberto and Spalt, Oliver G., Learning by Doing: The Value of Experience and the Origins of Skill for Mutual Fund Managers (March 30, 2017). Available at SSRN: https://ssrn.com/abstract=2124896 or http://dx.doi.org/10.2139/ssrn.2124896.