Private credit has become one of the fastest-growing investments in Australia. The sector has grown from around $35 billion a decade ago to more than $200 billion today, and much of that growth has come from individual investors drawn by monthly income that comfortably exceeds term deposit rates.
Those yields are real, and private credit is a legitimate part of Australia’s capital markets. But a higher yield is always payment for something. In private credit, that something includes credit risk, liquidity risk, valuation risk and a level of opacity that most investors would not accept in other parts of their portfolio.
2026 has made those risks visible. ASIC has named poor private credit practices as an enforcement priority, warned funds that their valuations must reflect real conditions, and in August several funds froze redemptions after the collapse of a major property developer. This guide explains what private credit is, where the extra yield comes from, what the regulator has found, and the questions worth asking before you commit money.
Private credit at a glance
Private credit is often marketed as an alternative to term deposits or bonds. The comparison below shows why that framing can be misleading.
| Term deposit | Diversified bond fund | Private credit fund | |
|---|---|---|---|
| Who you are lending to | A bank or other ADI | Governments and large companies | Property developers, businesses and other borrowers outside the banking system |
| Capital protection | Government guarantee up to $250,000 per ADI | None, but high-quality issuers | None, depends on loan quality and security |
| Access to your money | At maturity, or with notice | Usually within days | Monthly, quarterly or longer, and redemptions can be frozen |
| How it is valued | Not applicable | Daily market prices | Manager or independent valuation of loans that do not trade |
| Transparency | High | High, holdings published | Often limited, borrower details rarely disclosed |
| Main risks | Inflation, reinvestment | Interest rates, credit | Defaults, concentration, liquidity, valuation and governance |
| Portfolio role | Defensive | Defensive | Income with growth-like risk, not a defensive substitute |
For a broader explanation of term deposits, bonds and hybrids, see our guide to fixed income for Australian investors.
What is private credit?
Private credit is lending that happens outside the banks and public bond markets. Instead of a borrower going to a bank for a loan, a fund manager pools money from investors and lends it directly.
The sector has grown partly because banks have pulled back from certain types of lending, particularly property development and construction finance, where capital rules make bank lending more expensive. Non-bank lenders have filled the gap, and investors have funded them.
In Australia, a large share of private credit is secured against real estate, with meaningful exposure to construction and development loans. Other funds lend to mid-sized businesses, provide asset-backed finance, or invest in offshore private credit. These are very different risks under the same label, which is one reason comparisons between funds are so difficult.
Where does the higher yield come from?
When a private credit fund pays several percentage points more than a term deposit, that premium is made up of several components:
- Credit risk. The borrowers are typically those who cannot, or choose not to, borrow from a bank. Some are perfectly sound. Others have been declined elsewhere. Higher interest compensates for a higher chance of default.
- Illiquidity. Loans in a private credit fund cannot be sold quickly on a market. Investors are paid extra for accepting that their money may be locked up.
- Complexity. Assessing a construction loan, a second mortgage or a business loan takes expertise. Part of the return is payment for bearing risks that are hard to measure from the outside.
- Subordination and leverage. Some funds lend on a second-ranking or mezzanine basis behind another lender, or borrow to boost returns. Both raise the yield and the risk together.
None of these premiums are free money. Each one is a risk that will, at some point, be tested. The question for an investor is not whether the yield is attractive, but whether the risks behind it are well managed and fairly priced. Our article on investment mistakes we see time and time again includes chasing yield for exactly this reason.
How private credit is offered to Australian investors
Retail unlisted funds. Registered managed investment schemes available to everyday investors, issued with a product disclosure statement and a target market determination. Redemptions are usually monthly or quarterly, subject to the manager’s discretion.
Wholesale funds. Available only to investors who meet the wholesale or sophisticated investor tests. These funds have lighter disclosure obligations and are not subject to the same consumer protections as retail products.
Listed investment trusts. Private credit trusts listed on the ASX allow investors to buy and sell units on market. This provides daily liquidity for individual investors, but the units can trade well below the value of the underlying loans when sentiment turns.
Term accounts and notes. Some managers offer fixed-term products that look and feel like term deposits. They are not bank deposits, are not covered by the Financial Claims Scheme, and carry the credit risk of the underlying loan pool.
How a fund is packaged does not change the underlying loans. A listed trust and an unlisted fund lending to the same borrowers carry the same credit risk. What changes is how that risk shows up in the price you see.
The key risks of private credit
Credit and concentration risk
Every loan carries the risk that the borrower cannot repay. In a diversified bond fund, a single default has a small effect. In a private credit fund with a few dozen loans, one large default can have a material impact on returns.
Concentration in property development adds another layer. The conditions that cause one development to fail, such as rising construction costs, falling apartment prices, or a builder’s insolvency, tend to affect many projects at the same time. That means defaults can cluster rather than arrive one at a time.
The liquidity mismatch
Many private credit funds hold loans with terms of one to three years, yet offer investors monthly or quarterly redemptions. That works while new money is flowing in and loans are being repaid on schedule. Under stress, when loans are not being repaid and investors are rushing for the door at once, the manager cannot sell the loans fast enough to meet withdrawals.
The usual response is to suspend or limit redemptions, often described as gating or freezing. This is generally permitted under the fund’s constitution and does not by itself mean the fund has failed. But it means your money is inaccessible at precisely the time you are most likely to want it. Investors in several Australian private credit funds experienced this directly in 2026.
Valuation risk
Private loans do not trade, so their value is an estimate. Many private credit funds report remarkably stable unit prices month after month. That stability can be genuine, but it can also reflect a valuation process that is slow to recognise problems.
A smooth unit price is not the same as low risk. It can make a fund look more defensive than it is, and it can mean investors who redeem early are paid out at a price that later proves too high, at the expense of those who stay. In June 2026, ASIC publicly warned private credit funds that their end of financial year valuations must be current, accurate and based on realistic assumptions.
Fees and income transparency
In many private credit structures, the investor’s return is only part of what the borrower pays. Managers may retain a margin between the rate charged to borrowers and the rate distributed to investors, along with establishment, line and default fees. These amounts are not always clearly disclosed. Without knowing what borrowers are paying, it is difficult to judge whether the return you receive is fair compensation for the risk you are carrying.
Governance and conflicts
Some managers lend to related parties, co-invest alongside the fund on different terms, or earn fees from both sides of a transaction. Those arrangements are not automatically improper, but they need to be clearly disclosed and independently managed.
Reduced protections for wholesale investors
Many private credit offers are available only to wholesale investors. Under the current tests, that generally means net assets of at least $2.5 million, or gross income of at least $250,000 a year for the past two years, certified by a qualified accountant. Professionals with high incomes, including doctors and medical specialists, often qualify without realising what that means.
Wholesale investors do not receive a product disclosure statement and fall outside the design and distribution obligations that require retail products to be targeted at suitable investors. Qualifying as wholesale says something about your wealth or income. It does not mean the product suits you or that you have the information to assess it.
What ASIC has found
ASIC has made private credit a major focus since 2025, and its findings are worth knowing before investing.
REP 814 (September 2025) examined the Australian private credit market and identified concerns around fees, conflicts of interest, valuation practices and liquidity management.
REP 820 (November 2025) reported on a surveillance of 28 retail and wholesale private credit funds. Among the findings, only four funds disclosed the interest rates charged to borrowers, fewer than half had detailed written credit or impairment policies, and only two of the 14 wholesale funds reviewed stress tested their liquidity. ASIC also found inconsistent definitions of what counted as a loan default. The regulator followed the report with stop orders against several retail private credit products.
2026 enforcement priorities. ASIC named poor private credit practices as an enforcement priority for 2026, and has since expanded its surveillance to include the boards, auditors and research houses connected to the funds.
June 2026 valuation warning. After reviewing 52 funds managing around $76 billion, ASIC reported early signs of credit deterioration, softer inflows and tighter liquidity, and called on funds to make sure their 30 June valuations reflected current conditions.
The message across all of this is consistent. ASIC accepts that private credit plays an important economic role. Its concern is that practices have not kept pace with growth, and that many investors cannot see the risks they are taking.
Questions to ask before investing
Whether you are considering a private credit fund yourself or have been recommended one, these questions separate well-run funds from those that rely on investors not asking:
- What does the fund actually lend against? Ask for the split between residential, commercial, construction, land and business lending, and between first and second ranking security.
- How concentrated is it? How many loans does the fund hold, and what share does the largest single loan or borrower represent?
- What are borrowers paying? What is the average rate charged to borrowers, and how much does the manager keep in margins and fees?
- How are loans valued, and by whom? Is there independent valuation, how often, and how are loans in arrears treated?
- What is the arrears and default history? How does the fund define a default, and how many loans are currently in arrears, extended or restructured?
- What happens if many investors want out at once? What are the redemption terms, has the fund ever suspended withdrawals, and does it stress test its liquidity?
- Are there related-party loans or conflicts? Does the manager or its associates lend alongside the fund, borrow from it, or earn fees from borrowers?
- Who oversees the manager? Who is the responsible entity or trustee, who audits the fund, and how independent are they?
A good manager will answer these clearly and in writing. Vague answers, or reluctance to answer at all, are themselves useful information.
How private credit fits in a portfolio
The most common error is treating private credit as a higher-yielding term deposit. It is better thought of as an income-producing investment with risks closer to growth assets than defensive ones. Our guide to the benefits and risks of growth assets explains that distinction.
A few principles follow from that:
Size it modestly. Private credit should generally be a limited part of a portfolio rather than the core of it, and should not replace the cash and high-quality fixed income you rely on for liquidity. Our guide on asset allocation at different ages sets out how defensive and growth assets are typically balanced.
Keep spending money liquid. Money needed for living expenses in the next few years, especially in retirement, should not be in an investment that can freeze. Our guide on whether to invest or keep money in cash covers how much to keep accessible.
Diversify across managers and loan types. Holding several funds with different lending strategies reduces the impact of any single manager’s mistakes. Global diversification can also reduce reliance on the Australian property market, which many investors are already heavily exposed to through their own homes.
Understand the tax. Private credit distributions are generally interest income, taxed at your marginal rate with no franking credits attached. For investors on higher tax rates, the after-tax gap between private credit and alternatives such as franked dividends can be smaller than the headline yield suggests. Our guide to tax on investments explains how different income is treated.
If your fund suspends redemptions
A suspension is unsettling, but it does not automatically mean your capital is lost. Many funds that freeze redemptions continue to collect loan repayments and return capital to investors over time as loans are repaid.
If it happens, read every communication from the responsible entity or trustee, note the timeframes it gives for reviewing the suspension, and ask for an updated breakdown of the loan book, including loans in arrears. Avoid making rushed decisions, such as selling units in a related listed vehicle at a deep discount, without understanding the position first. Our article on why investors make emotional decisions is relevant here. And if you were advised to invest, ask your adviser to explain how the fund’s liquidity risk was assessed when it was recommended.
Where professional advice adds value
Private credit is difficult to assess from the outside. Offer documents describe what a fund intends to do, not how its loans are performing, and the stability of the unit price can hide problems until they are well advanced. Many investors have been offered these products without an independent view of whether they suit their circumstances.
A financial adviser can help you decide whether private credit has a place in your portfolio at all, how much exposure is appropriate, and how it should sit alongside your cash, fixed income and growth assets. Just as importantly, an adviser can ask the hard questions of a manager on your behalf, and give you a second opinion on an investment you have already been offered. Private credit works best as one deliberate part of a well-built investment portfolio, not as a replacement for one.
If you hold private credit, are considering it, or would like a second opinion on a fund you have been offered, our investment advice and portfolio structuring team in Adelaide can help. You can also read more about how Money Path approaches investment strategy.
Frequently asked questions
Is private credit safe?
Private credit is not inherently unsafe, but it is not a low-risk investment. Returns depend on borrowers repaying their loans, and there is no government guarantee. Risk varies widely between funds depending on what they lend against, how concentrated they are, how they value loans and how they manage liquidity. ASIC has named poor private credit practices as a 2026 enforcement priority.
How is private credit different from a term deposit?
A term deposit is a deposit with a bank, protected by the Financial Claims Scheme up to $250,000 per account holder per institution, with your capital returned at maturity. A private credit fund lends your money to borrowers outside the banking system. There is no guarantee, your capital depends on those loans being repaid, and access to your money can be restricted or suspended.
What happens when a private credit fund freezes redemptions?
A freeze, also called a suspension or gating, means the fund stops processing withdrawal requests, usually because it does not have enough cash to meet them without selling loans at a loss. It does not necessarily mean investors will lose money. Many funds continue to return capital as loans are repaid, but it can take months or years.
Are listed private credit trusts less risky than unlisted funds?
Listed trusts offer daily liquidity because units trade on the ASX, but the underlying loans carry the same risks. The difference is that the risk shows up in the unit price, which can trade well below the value of the underlying loans when investor sentiment turns. Selling at a discount locks in that loss.
Do wholesale investors get the same protections?
No. Wholesale funds do not need to provide a product disclosure statement, and they are not covered by the design and distribution obligations that apply to retail products. Qualifying as a wholesale investor depends on your wealth or income, not on whether a particular investment suits you, so it is worth understanding what you are giving up before investing on a wholesale basis.
How is private credit income taxed in Australia?
Distributions from private credit funds are generally interest income, taxed at your marginal rate. They do not carry franking credits. Gains or losses on selling units in a listed private credit trust are generally subject to the capital gains tax rules. Holding private credit inside super changes the tax rate, but not the investment risk.
How much of my portfolio should be in private credit?
There is no universal figure, but private credit should generally be a modest allocation, treated as illiquid and higher risk rather than defensive, and spread across more than one manager. Money you rely on for living expenses, particularly in retirement, should be held in assets you can access when you need them.
General advice warning. This article contains general information only and does not take into account your objectives, financial situation or needs. It is not a recommendation to invest in, or to refrain from investing in, any particular fund or product, and no specific fund or manager is referred to. References to regulatory findings describe published ASIC reports and statements and do not imply anything about any individual fund. Private credit investments can lose value, and access to your money may be restricted. You should read the relevant offer documents, consider whether the information is appropriate for you and seek personal financial advice before acting on any of it. Money Path Pty Ltd is a Corporate Authorised Representative (No. 001306822) of Australia National Investment Group, AFSL 522028.
