Investors watching headlines about distress in US private credit funds could be forgiven for feeling uneasy. But context matters. The structural, regulatory, and lending-practice differences between the US and Australian private credit markets are substantial and understanding them is essential before drawing any conclusions about local funds.
Same Asset Class. Very Different Markets.
Private credit is a broad church. The term describes direct lending to businesses outside the public debt markets, but that shared label conceals sharply different risk profiles, lending disciplines, and regulatory environments depending on where in the world you are operating.
The US private credit market traces its origins to 2013, when banking regulators constrained banks from writing loans above 6x EBITDA. Capital flowed quickly into non-bank lenders to fill that gap, and an industry with a five-year head start on its Australian counterpart was born.
Australia’s market came later, emerging in 2018–19 in the wake of the Hayne Royal Commission. Increased regulatory and compliance complexity made bank lending to small businesses more difficult, creating the opening for private credit to step in. The different origins are not just historical footnotes. They have shaped entirely different risk cultures and lending practices.
What Has Gone Wrong in the US?
The US private credit market is materially larger, far more competitive, and operates with a meaningfully higher risk appetite than its Australian equivalent. That competitive pressure has driven lending practices that would raise eyebrows here.
Consider the exposure many US funds have built to the SaaS (Software-as-a-Service) sector:
- Approximately 25% of US private credit lending is to SaaS businesses
- Funds typically size debt as a percentage of borrower market valuation, with a median debt-to-valuation ratio of around 40%
- The average SaaS business is valued at approximately 20x EBITDA implying those loans are effectively leveraged at 8x EBITDA
- The rise of AI has compressed both SaaS valuations and earnings, placing entire loan portfolios under stress simultaneously
The problem is compounded by how EBITDA itself has been defined in some transactions. Industry sources have described cases where the earnings figure used to size debt has been materially inflated through addbacks including, in one specific example, the inclusion of revenue from future contract wins that had not yet been earned.
Candidly put, Australian private credit is relatively boring. Asset-backed lenders size debt as a percentage of independently valued, tangible assets. Most cashflow lenders size debt at 2x–4x EBITDA. That is a very different proposition to 8x leveraged SaaS lending.
Taken together aggressive leverage, inflated earnings bases, and sector concentration in an industry now being disrupted by AI these dynamics represent a material emerging risk to US private credit investors.
The Liquidity Question
Private credit is, by design, not a liquid asset class. Investors accept that in exchange for an illiquidity premium — the additional return they earn above what liquid markets offer. That trade-off is explicit and appropriate.
The recent US experience, however, has highlighted what happens when that illiquidity is not well managed. Blue Owl and BCRED – two of the larger US non-traded private credit vehicles – offered quarterly redemptions capped at 5% and 7% of funds under management respectively. Both honoured those redemptions. The issue was not non-payment; it was that the caps were insufficient to absorb the volume of investors seeking to exit simultaneously.
This brought up a further concern: the potential for fire sales of underlying loans to fund redemptions. Here, the regulatory differences between the US and Australia become particularly relevant.
- The US system is disclosure-based and contractually governed. Provided fund documents permit it, discounted asset sales are generally permissible so long as they are disclosed and conducted on an arm’s-length basis.
- The Australian system is conduct-based. ASIC Regulatory Guide 134 requires funds to manage liquidity such that redemptions do not materially disadvantage remaining investors. The obligation to suspend redemptions when assets cannot be sold without a significant discount is built directly into the regulatory framework.
In other words, Australian regulation is specifically designed to prevent the scenario that has caused reputational damage to some US funds – the fire sale that erodes value for those who stay.
How Australian Funds Are Structured Differently
The contrast in lending discipline is equally stark. Where US funds have leaned into valuation-based lending at high multiples, Australian private credit, including asset-backed strategies, operates with considerably more conservative underwriting:
- Asset-backed lenders size debt as a percentage of independently valued, tangible assets — physical security that holds value regardless of earnings fluctuations
- Cashflow lenders in Australia typically cap leverage at 2x–4x EBITDA, a fraction of the multiples seen in the US SaaS lending space
- Australian funds generally avoid the sector concentration and creative EBITDA definitions that have created vulnerability in US portfolios
This conservatism reflects both the culture of the market and the regulatory environment in which it operates. It does not make Australian private credit risk-free — no investment is — but it does mean that the specific stresses now manifesting in the US have limited direct read-across to Australian funds.
What Should Investors Take From This?
The current environment is a useful reminder that private credit is not a monolithic asset class. The name describes a structure, not a risk level. Understanding what sits beneath the label – the borrowers, the leverage, the security, the regulatory framework, and the liquidity terms – is what determines whether a fund is well-positioned or exposed.
For Australian investors, the key questions to ask of any private credit manager remain straightforward:
- How is debt sized, and against what tangible assets or market valuations?
- What leverage multiples are being applied?
- What sectors carry concentration risk?
- How is EBITDA defined, and what addbacks are permitted?
- What are the liquidity terms, and are they consistent with the liquidity of the underlying assets?
Funds that can answer these questions clearly and conservatively are in a fundamentally different position to the US vehicles now under investor scrutiny.
Speak With Barker Wealth
If you would like to discuss your exposure to private credit, or explore how these dynamics affect your portfolio, our team is available to walk you through the detail and help you assess whether your current positioning remains appropriate.
Disclaimer: This article has been prepared by Barker Financial Pty Ltd ABN 62 675 838 605, trading as Barker Wealth, a Corporate Authorised Representative (CAR 1317193) of AFSL Holdings Australia Pty Ltd (AFSL 460940). The information is general in nature and does not constitute personal financial advice. It has been prepared without taking into account your objectives, financial situation, or needs. Before acting on any information contained in this article, you should consider its appropriateness having regard to your own circumstances and seek independent financial advice. Past performance is not a reliable indicator of future performance. This article draws on information published by Rixon Capital (20 March 2026).