A private credit lender’s chief executive has hit back at critics of the sector. That is a useful prompt, but a poor basis for a decision. A defence from inside the industry tells you what one participant believes. It does not tell you whether a particular fund is safe for your money or your client’s.
So here is a different approach: private credit due diligence that works regardless of who is arguing what. The sector spans very different products, from conservative first-mortgage funds to aggressive development and second-ranking exposure. Treating them as one asset class is the first mistake.
Why the scrutiny exists
Private credit grew quickly as banks pulled back from parts of commercial and development lending. Non-bank lenders filled the gap, and retail and wholesale investors followed the yield. Fast growth in a lightly understood product tends to attract regulators, and it has. Expect continued attention on how funds describe themselves, how they value what they lend against, and what they tell investors about getting money out.
That scrutiny is not proof that the whole sector is flawed. It is a reminder that the quality gap between best and worst operators is wide.
Six checks that do not depend on anyone’s defence
The lender’s own framing offered six questions for investors and brokers. Rather than relay them, here is an independent version built around the risks that tend to matter most.
- Disclosure. Can you see, in plain terms, what the fund lends against, at what loan-to-value ratio, and how fees are charged? If the product disclosure document is vague about any of these, treat that as information.
- Liquidity. What are the actual redemption terms, and what happens if many investors ask at once? A fund that promises easy exits while holding long-dated loans has a built-in mismatch.
- Concentration. How much of the book sits with one borrower, one developer or one project type? Diversification claims should be checkable, not assumed.
- Valuation of security. Who values the property backing each loan, and are they independent of the lender? Valuations on incomplete developments are estimates, not facts.
- Arrears and workouts. How does the manager define a loan in trouble, and how often are loans extended rather than recognised as impaired? Rolling an overdue loan can hide problems for a long time.
- Alignment. Does the manager invest alongside you, and how are they paid? Fees on loans written reward volume, which is not the same as rewarding good lending.
The catch
In plain English
- Yield is the price of risk, not a bonus on top of it.
- A fund’s marketing and its loan book can tell different stories.
- Ask for the numbers behind every reassurance.
What this means if you advise or invest
Brokers who place clients into these products carry their own reputational and compliance exposure. Documenting your reasoning, including why a given fund suits a given client’s liquidity needs, protects both sides.
For self-directed investors and SMSF trustees, the same logic applies with more at stake, because retirement money is rarely replaceable. Our guide to super, SMSF and property funds covers where property-linked investments sit within a wider strategy, and the trade-offs of locking money away.
What could derail this
A property downturn would test every fund at once. Falling security values compress the buffer between loan and asset, and tighter credit makes refinancing harder for borrowers. Funds with conservative loan-to-value ratios and spread exposure should hold up better, but none are immune. Treat any claim of “no losses to date” as a statement about a favourable stretch of the cycle, not a guarantee about the next one.
One step to take this week
Pick the fund you are considering and send its manager these six questions in writing. Compare the answers with the disclosure document. Gaps or evasions between the two are your cue to walk away or keep digging. For more analysis like this each week, subscribe to the newsletter.
General info, not financial advice.
