The spate of novelty-based super funds that came to market a few years back with little more than a catchy moniker was predicated on the realisation that enough crumbs were falling from big super’s table to warrant giving it a red hot crack.
After all, the total flow of new money into super annually is huge, and for the year ending September 2025 was around $215.6 billion.
When the market realised that these start-up funds had neither the all-important scale nor any real reason to exist – beyond raw opportunism – most of them collapsed within short order.
Fast forward to 2025 and the same opportunism is now evident within the private credit market, where new players are piling on, much to the disdain of regulators who have become more vocal in their warnings to yield-seeking Aussie retail investors.
ASIC sounds warnings
Here in Australia, the regulator, the Australian Securities and Investments Commission (ASIC) has joined a growing chorus of regulators and analysts globally warning about poor quality private credit taking money off gullible mum and dad investors, while also undermining the broader financial system.
As a case in point, the number of listed companies on the ASX and other global bourses has fallen in recent years.
The value of equity raised during initial public offerings (IPOs) has also plunged, with companies preferring to tap private credit markets over a public listing and IPO fund raise.
ASIC indicated it was keen to reinvigorate the market for IPOs, and said some participants viewed regulation as one reason for the decline in listings.
The regulator has encouraged the ASX to look at simplifying future editions of its corporate governance principles to ensure they are not deterring businesses from listing on the share market.
But despite rapidly growing, private credit – the practice of fund managers raising money from investors and lending directly to borrowers – remains an under-regulated part of global finance, which is attracting its fair share of bad actors.
Poor transparency and high default
Back in November, a lengthy investigation by ASIC uncovered fee gouging and poor risk management practices among the nation’s private credit firms.
What worries ASIC is concern over transparency in the private credit sector, which is understood to have ballooned by more than 500% since 2015, and last year expanded lending by 9% to $224 billion.
ASIC is also worried that loan defaults end up leaving retail investors high and dry.
However, to its credit, Australian private credit default rates have been far lower than those observed offshore, while many lenders claimed to have avoided losses entirely.
Meantime, the regulator’s inquiries between October 2024 and August this year found that less than half of the 28 private listed, retail, wholesale and unlisted credit funds assessed had “detailed, written credit or impairment and [loan] default management policies” in place.
“We are concerned that private credit fund reporting may not provide investors with a true reflection of non-performing and distressed fund assets,” the regulator noted.
“Private credit at current volumes is untested in a stress scenario, and we are already seeing wide variance in practices across the sector. We must learn from previous crises and act to avoid future disruption.”
ASIC analysis discovered that the product disclosures of 10 retail funds were lacking when it came to investment strategies, details of underlying assets and related-party transactions.
ASIC also pointed the finger at research houses - private credit researchers – for having limited capacity to independently verify data and information provided by fund operators and investment managers.
Australia still in private credit infancy
While there is no definitive, publicly available single number for all private credit operators in Australia, the Reserve Bank (RBA) has identified more than 200 lenders with a managed fund structure across their data sources.
Meanwhile, research firm Lonsec only researches and rates 28 Australian private credit funds.
While some smaller lenders with assets under $50 million may not be required to report to authorities like APRA, examples of known private credit operators in Australia include Metrics Credit Partners, La Trobe Financial, KKR, Pallas Capital, and Apollo Global Management.
Despite the rapid growth of the private credit market in Australia in recent years, it remains in its infancy relative to global markets.
Data from Capital IQ reveals that private credit accounts for 9% of leveraged finance in Australia, while in the U.S. and Europe, those numbers are 91% and 65% respectively.
Lagging the US by a decade
According to Sydney-based growth credit provider, Mighty Partners, Australia’s private credit market is where the U.S. was a decade ago — before flexible credit started fuelling entire segments of the innovation economy.
The credit provider attributes Australia’s slow uptake in private credit to the country’s relatively concentrated banking sector, its younger venture ecosystem and limited capital diversity, with many founders defaulting to either venture capital or bank loans, due to being unaware of more flexible, in-between solutions.
“But that’s changing and fast, several shifts are driving private credit toward the mainstream in Australia,” Mighty Partners notes.
“Private credit is maturing as an asset class, non-bank lenders are stepping in to fill critical gaps and there’s a new focus on structure and profitability.”
US middle market attracts Aussie instos
Meanwhile, it’s not just yield-chasing Australian retail investors that are being lured by private credit.
In the U.S., private credit is now the dominant form of leveraged finance, and a deeper dive finds that U.S. middle market direct lending - a key segment of private credit - is emerging as an attractive option for Australian institutional investors seeking reliable income and portfolio diversification.
Driven by the excess income these private loans generate and relatively low credit losses, middle market direct loans have historically delivered attractive returns compared to public high yield and broadly syndicated leveraged loans.
It’s the scale of the U.S. middle market - the largest and most developed globally - providing access to a deep pool of borrowers, that allows Australian institutional investors to tap higher-quality assets and achieve enhanced diversification relative to domestic opportunities.
Several structural features underpin these outcomes.
For example, middle market direct loans are floating rate, meaning their income adjusts with prevailing interest rates, reducing price sensitivity to rate changes.
They are also senior in the borrower’s capital structure, most often secured by a first lien on all the company’s assets.
