Global private credit is moving from the margins to the mainstream in Australia, reshaping the way portfolios are built and financed. Long familiar to large offshore institutions, the asset class is becoming easier for Australians to access in a development that is changing the investment landscape.

Nehemiah Richardson, chief executive and managing director of Pengana Credit, and subsidiary TermPlus, says the idea itself is anything but new.

“It goes back to the Medicis in the 1400s providing loans to businesses to grow,” he says. “Bilateral loans between a lender and a borrower have been around a very long time. What’s changed over the last 30 years, besides for the level of sophistication, is the accessibility.”

For most of the modern era, companies borrowed from banks and outside investors had little way to get direct exposure to those loans. “You couldn’t just go to a bank and ask for a slice of their corporate loan book,” Richardson says. “The only way in was through instruments like bonds or hybrids, which are backed by the bank’s entire balance sheet.”

That started to shift after the global financial crisis. In the United States and Europe, regulators moved to reduce liquidity mismatches by discouraging banks from funding long-term, illiquid loans with at-call customer deposits. Richardson says that structural shift opened the door for specialist non-bank lenders.

“Regulators didn’t want banks running that liquidity mismatch, so fund managers emerged to underwrite loans and build private credit portfolios funded by patient capital,” he says. Insurance companies, seeking long-dated income to match their liabilities, provided a natural source of that capital.

“The liquidity profiles matched – loans typically ran three, five or seven years, and the investors didn’t need their money back at call,” he says.

Globally, that framework matured. Specialist managers built diversified portfolios of bilateral loans and institutional allocations grew. Over time, innovation made access simpler for wealth managers and their clients. Australia, however, evolved differently because the big four banks retained a dominant role in lending due to the size and concentration of our lending sector making it easy to regulate.

“About 90 per cent of loans here sit on bank balance sheets,” Richardson says. Private credit in Australia is concentrated in narrower niches – parts of commercial property, subordinated positions in asset-backed structures, and loans attached to large private equity deals. Globally (US and Europe), banks only account for about 16% of the total lending market.

Barriers to exposure

Global private credit exposure from Australia brought its own hurdles. Richardson points to four barriers that have historically made participation difficult for Australian investors.

“First, identification – from here, it’s hard to work out who the right managers are. Second, access – the best managers can have significant minimum investments. Third, diversification – to spread risk properly you need enough capital to allocate across multiple managers. And finally, currency – if you want capital preservation in a fixed-income-like strategy, you generally want to hedge US dollar or euro exposure, which adds complexity,” he says.

What is drawing attention now is not an exotic strategy, but a set of structural characteristics. Global private credit in its dominant form – direct lending – is based on bilateral contracts that set out covenants, reporting and remedies. “Managers have information rights, so they can see performance monthly and step in early if something goes off plan,” Richardson says.

Selection is deliberate. “You’re looking for businesses that are defensive and non-cyclical, with stable demand, strong cash conversion and low capital intensity,” he says. Loan-to-value ratios typically sit between 30 and 50 per cent.

Those mechanics help explain why institutions have long allocated to the asset class. Richardson points to the relationship between return and volatility.

Risk and liquidity sit at the centre of the discussion. Richardson says investors should expect a trade-off. “Generally speaking, the higher the return in private markets, the lower the liquidity,” he says. The practical test is whether the redemption terms match the time it takes to realise the underlying assets.

“If you’re in a property development portfolio, capital is tied up in buying land, building and then selling or leasing. Monthly redemption promises in that context don’t match the asset,” he says. Direct lending is different again – the loans amortise or repay at term, and managers rely on covenants and ongoing monitoring to manage downside.

“Make sure you understand the risk of the asset, that you’re being compensated for any illiquidity, and that the liquidity window you’re offered actually matches what the strategy is,” he says.

Access is widening as structures evolve, but Richardson is careful about the framing. The story is about availability and portfolio construction, not empty promises.

“This isn’t about chasing outsized upside,” he says. “It’s about where a contractual income stream and capital preservation characteristics can fit alongside other assets.” He stresses the importance of diversification, and adds that concentration risk should be managed within the asset class as well as across it. “No single manager will always outperform, so you want to avoid idiosyncratic risk. The US and Europe can have different dynamics, so having exposure to both makes sense.”

Industry consultants say the appeal of global private credit is not just in its growth, but in how it behaves alongside traditional assets. The characteristics that have long drawn institutional allocations overseas are becoming more visible to a broader group of investors in Australia, as more access points become available.

Fixed income bucket

Marcus De Kock, alternatives investment director for the Pacific region at Mercer, says private credit’s role is most often considered in the fixed income bucket.

“It offers the potential of yield premium pickup to public markets and lower volatility relative to public markets,” he says. The diversification benefit comes from its relatively low correlation.

De Kock also points to its inflation-linked features. “Because much of it is floating rate debt, it has historically acted as an inflation hedge,” he says.

He adds that growth in the asset class is creating new opportunities and new risks. “With new funds and managers coming in, investors have to do their homework,” he says. “There’s been significant dispersion in returns across managers, so selection is critical.”

Independent reports show private credit growth is not confined to Australia, it is gaining momentum globally as well. The Herbert Smith Freehills A Pulse on Private Credit Investment in Australia 2025 report estimates Australia’s private debt market at $188 billion in assets under management (AUM). Globally, the Moody’s January 2025 Private Credit Outlook projects that private credit AUM will reach $US3 trillion by 2028.

What comes next

Richardson’s on-the-ground perspective aligns with that direction, but he keeps the emphasis on mechanics over marketing – how loans are selected, monitored and repaid, and how liquidity is handled at the portfolio level.

What comes next will be shaped by both regulation and borrower behaviour. “Regulators in the US and Europe still want risks spread across the financial system and fewer liquidity mismatches at banks,” says Richardson.

“That creates ongoing opportunity for global private credit.” Borrowers are also a driver. “Banks tend to offer standardised products. Private credit can provide bespoke solutions – tailored to specific needs – and managers who do that well are compensated for the services they provide,” he says.

Demographics matter too. “As populations age, the need for income and capital preservation grows,” Richardson says. “Institutions, wealth channels and others are looking for those characteristics.” None of this is about telling anyone what to do with their money – it is about recognising how a centuries-old form of finance is being used in modern Australian portfolios as access improves.

From the Medicis to modern mandates, the core principle is unchanged – bilateral lending solves real-world financing problems, and the pool of investors able to participate has widened. “This isn’t new,” Richardson says.

“It’s been going on for a very long time. The change is that more people here can now get access to it.” Looking ahead, he sees technology, regulatory maturity and deeper local expertise combining to make global private credit a more transparent and efficient market for Australian participants.

“The next stage is about scale and sophistication,” he says. “We’ll see greater specialisation in lending strategies, better data on performance, and more ways for investors to tailor their exposure without taking on unnecessary risk.”

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