What is private credit?

Last updated: 11 September 2026

How it works, who it suits and what to know before you invest

How private credit works

Private credit is a type of credit or loan that is not publicly traded or widely issued on public markets. 

Most investors access private credit through investment funds. These include unlisted managed funds, funds that trade on exchanges, like the ASX, and listed investment trusts (LITs). Private credit funds pool money from many investors and use that money to invest in loans. The funds can lend directly, buy existing loans or invest in other funds that hold loans.  

A fund manager makes investing decisions on behalf of investors.  

Returns can come from the interest and fees paid by borrowers on the loans, minus fund fees and costs. 

If you have superannuation, you may already be investing in private credit. 

Types of private credit

There can be different types of lending strategies: 

• Corporate lending: direct loans to businesses 
• Real estate lending: loans for buying or developing residential or commercial property 
• Asset-backed lending: loans or investments secured by pools of assets like mortgages, car loans and credit card repayments 
• Investment in debt instruments, such as bonds, debentures or lines of credit 

Private credit has become a larger part of the Australian investment market in recent years. One reason is that more businesses are turning to non-bank lenders. 

Some private credit investments have multiple layers of companies, trusts or funds. The more complex the structure, the harder it can be to understand where your money is invested, who earns fees and how risks are managed. 

Benefits of private credit

Investors use private credit to earn regular income and diversify their investments.  

Private credit is often promoted as providing regular, steady payments – but it covers a wide range of risk and return. 

Private credit investments can include loans to large, established corporations, secured lending backed by assets as well as higher-risk loans for real estate purchases and property development. 

Risks of private credit

All investments carry risks. Some risks to be particularly aware of in relation to private credit are:    

Not transparent: Private credit is less transparent than public markets. You may find it hard to get information about what the fund invests in, how loans are valued, how performance is measured, how fees are calculated and what fees you’ll pay. 

Valuation uncertainty: Unlike shares and bonds that are traded on an exchange, private credit loans are valued using models and judgement. That means reported prices may not always reflect true market value. 

Illiquidity: Private credit funds may lock up your money for years. Even when withdrawals are allowed, you might face delays if the loans cannot be sold quickly. 

Leverage: Some funds borrow money themselves or lend to highly indebted businesses. This can increase returns when conditions are good, but it also magnifies losses in a downturn. 

Is private credit right for you? 

Investing well means choosing investments that fit your financial goals, investing time frame and risk tolerance.  

Private credit may suit if you:

• want an investment that pays regular income and you’re willing to accept higher risk than some other income-paying investments 
• can leave your money invested for several years 
• understand that valuations may be set by the fund manager, not a public market 
• are looking to diversify your portfolio beyond shares and bonds 

Private credit may not suit if you:

• need quick or certain access to your money – withdrawals may be restricted or delayed because loans cannot always be quickly sold or repaid 
• want investments with government guarantees or capital protection 
• are not comfortable with the risk of missed payments or default 
• prefer simple, low fee investments – many private credit funds have complex and layered fees 

What to check before investing in private credit

If you have decided that investing in a private credit fund is right for you, compare your options. Not all funds are the same. 

Look closely at how each fund is run and where it invests. Look beyond the advertisements and read the Product Disclosure Statement (PDS). This should set out key features, fees, commissions, benefits, risks and the complaints process. 

Make sure that you understand: 

chevron_right How the investment works: what types of loans does the fund invest in, , who is borrowing the money, how are those loans secured and what happens if a borrower can’t repay. 

chevron_right How the fund manager chooses loans: Some private credit funds may have significant exposure to one industry, region or borrower type. Check whether the fund is diversified or concentrated in a particular area. 

chevron_right How the fund generates a return: whether returns come from interest only, or also from fees and capital gains. 

chevron_right Risks and liquidity: Has the fund experienced any loan defaults or overdue loans? If so, how were they managed and what impact did they have on investors? 

chevron_right Fees: What are the costs for buying, holding and selling the investment. Find out how fees and costs will affect your investment using the Managed funds fee calculator. 

chevron_right How the fund manager gets paid: Look beyond the headline management fee. Ask whether the fund manager keeps borrower fees, default fees or part of the interest charged on loans. These arrangements can affect the return you receive and make it harder to compare funds.

Get financial advice before investing

Private credit can be complex. Consider getting help from a licensed financial adviser before you decide whether to invest.

Your super fund can tell you if private credit is part of their investment options and explain the options available. You may also be able to pay for more detailed investment advice from your super account.

Read more about how to get financial advice and learn more about how to invest.