Private credit has surged in popularity with Australian investors—especially those hungry for income in a post-rate-hike world. It’s easy to see why: many funds offer yields well above 8%, far outpacing term deposits or government bonds.
But there’s a growing misconception in the market that all private credit funds are the same—and that the one offering the highest return must be the best.
This thinking can be dangerous.
💳 What Is Private Credit?
Private credit refers to non-bank loans made directly to businesses, property developers, or other borrowers. These loans can differ greatly:
Some are backed by assets (like real estate), others are unsecured
Some are senior secured, others are subordinated or mezzanine
These differences matter immensely when it comes to risk.
⚖️ Not All Loans Are Equal
At the core of every private credit fund is a pool of loans. But what kind of loans?
Lending to a stable, cash-generative corporate backed by real assets is very different from funding a high-risk property developer with no pre-sales and a tight timeline.
Even if two funds offer the same target return, they could be exposing investors to vastly different risks:
One may be investing in first-mortgage loans to completed assets
Another may be funding speculative mezzanine positions or unsecured business credit
📈 Higher Return = Higher Risk
Yield should always reflect risk. So when you see a fund offering 12% or more, ask:
Is the high return because of the manager’s skill—or because the underlying loans are risky, illiquid, or poorly structured?
Chasing high yield without understanding the structure is like picking the fastest car without checking if it has brakes.
❓ Key Questions to Ask
Before investing in private credit, consider the following:
Who is borrowing the money?
Is there real security (e.g. first mortgage)?
What happens if the borrower defaults?
How long is my money locked in?
What experience does the fund manager have in recoveries and downturns?
Are fees reasonable and transparent?
Also, check for third-party oversight. Quality funds often appoint:
Independent trustees
Auditors
Investment committees
This provides proper governance and discipline.
🚩 Red Flags to Watch Out For
Be cautious of:
Vague or limited disclosures
Sky-high returns with no mention of risk
Managers with limited track records
Funds raising aggressively with no clear deployment pipeline
💡 The Bottom Line
Private credit can play a valuable role in a portfolio—but only when you understand what you’re buying.
Remember: yield is not a free lunch.
Just because something pays 10% doesn’t mean it’s safe or sustainable.
Take the time to assess each opportunity properly—or speak to your SWU Group adviser who understands the landscape.
In this market, selecting the right manager is more important than chasing the highest number. financialsuccess@simonwu.com.au