Private Credit
Lending that does not go through a bank. An investor supplies the capital, a borrower pays interest on it, and the loan sits outside the listed market where its value is set by a contract rather than by sentiment.
What you are actually buying
A private credit fund is a book of loans
Your return is the interest those borrowers pay, less the manager's fees, less whatever does not come back. That is the whole model, and it means the only questions that matter are about the borrowers and the security.
This is the part most investors skip. Two funds quoting a similar target return can hold entirely different risk: one lending at 55% of a valuation against a completed, tenanted building, the other lending at 75% into a development that has not been built yet. The yield looks alike. The downside does not.
Due diligence
The questions that separate one fund from another
These go to every manager before a fund reaches an investor. Where a manager will not answer one of them plainly, that is itself the answer.
Arrears is the one that matters most and gets volunteered least. A manager who discloses what is in arrears and what has been extended, without being asked, is telling you something about how the book is run.
- Security and rankFirst mortgage, second, unsecured? Where does this capital sit if the borrower fails?
- Loan to valueWeighted average LVR, on what valuation, dated when, and by whom
- ConcentrationLargest borrower, largest sector, largest geography
- ArrearsWhat is in arrears, what has been extended, and is it disclosed unprompted
- Liquidity termsRedemption windows, notice periods, and when the manager can gate
- Fee stackManagement, performance, and any fee earned from the borrower rather than from you
- AlignmentHow much of the manager's own capital is in the fund, and in what rank
What we access
Three ways in, selected on the security behind the loans
Corporate private credit
Senior secured and unitranche lending to established Australian businesses, typically floating rate, with covenants and security over assets or cash flows.
Real estate credit
First mortgage and mezzanine lending against residential, commercial and development property, secured by registered mortgage at a stated loan to value ratio.
Fund selection
Every manager assessed on the loan book. We read the security, the concentration, the arrears history and the redemption terms before we consider the return.
Where it sits
Between a bond and an equity holding. It pays more than investment grade fixed income because borrowers are smaller, loans are less liquid, and the lender does work a bank would otherwise do.
What you are taking on
Sold hard on yield alone. Here is the rest of it
Credit risk
Borrowers default. Security reduces the loss, it does not prevent it, and recovery takes time.
Liquidity risk
Your capital is committed. Redemption windows can be suspended, and they are most likely to be suspended precisely when you want your money.
Valuation risk
Loans are usually carried at par until a manager decides otherwise. A stable unit price is not the same thing as a stable loan book.
Concentration risk
Many Australian funds are heavily weighted to property development in a small number of postcodes.
Cycle risk
Loan books written late in a credit cycle carry the weakest terms. What matters is when the loans were written, not when you bought the fund.
Not a defensive asset
It is not a substitute for cash and it is not defensive in the way a government bond is. Used badly it concentrates you into one sector at the wrong point in the cycle.
Target returns are not indicative or guaranteed. Past performance is not a reliable indicator of future performance.
Who this is for
Investors who need income now and can leave the capital alone
It suits investors already heavy in listed equities who want a return that comes from a contract rather than a share price. It does not suit anyone who may need the money back at short notice.
Used well, it produces a regular income stream that does not depend on an equity market rising.
Eligibility
- Net assets$2.5m or more
- Or gross incomeAbove $250,000 p.a., each of the past two financial years
- Certified byA qualified accountant
How it works
Three steps, and you approve each investment
Verify and understand
We confirm your wholesale or sophisticated investor status and build a picture of your income requirements, your time horizons and the risk you already carry.
Research and recommend
You receive funds with our due diligence on the loan book, the security, the manager and the terms, alongside general advice on how much private credit belongs in your portfolio and why.
You decide, we execute
You approve each investment. We handle the application, administer the holding, monitor manager reporting and distributions, and report performance transparently.
Questions
Before you commit capital
Is private credit safe?
It is secured lending, which ranks ahead of equity, and it is not capital guaranteed. A first mortgage at a conservative loan to value ratio against a completed asset is a different proposition from an unsecured loan to a start-up, even though both are called private credit. The security and the borrower decide the risk, not the label.
How is a private credit fund different from a bond?
A bond is a single issuer with a stated coupon and a stated maturity date, held in your name. A private credit fund is a pooled book of many loans, managed on your behalf, with no single maturity date and a unit price the manager strikes. A bond gives you certainty about one borrower. A fund gives you diversification across many, and a layer of manager discretion between you and them.
Can I get my money out early?
Usually not on demand. Most funds offer periodic redemption windows with notice periods, and most retain the right to gate or suspend redemptions if too many investors ask at once. Treat the stated term as the real term.
What returns should I expect?
Target returns vary by security, rank and borrower quality, and any fund quoting a return well above its peers is taking more risk to get there. We show you where the extra return is coming from before we show you the number. Target returns are not indicative or guaranteed.
Can my SMSF invest in private credit?
Yes, where it is consistent with the fund's investment strategy and its trust deed, and where the fund meets the wholesale investor test in its own right. The illiquidity needs to be weighed against any pension payment obligations.
What does Barker Wealth charge?
Our fees and any benefits we receive are set out in our Financial Services Guide, available on this website or by calling (02) 8018 8998.
Private credit is one part of the income picture
Investors who come to us for private credit often hold it alongside individual bonds, structured products and commercial property.
Read more about Corporate Bonds and Fixed Income, Structured Investments and Commercial Property, or see how the whole portfolio fits together on our Investments page.
Barker Wealth Management Pty Ltd ABN 46 695 875 962, AFSL 700297. Suite 913/185 Elizabeth Street, Sydney NSW 2000. (02) 8018 8998. This page contains general information only and does not take account of your objectives, financial situation or needs. The investments described are available to wholesale and sophisticated investors only. Target returns are not indicative or guaranteed. Past performance is not a reliable indicator of future performance.