What is Private Credit? A Guide for Investors

If you’ve read the financial press over the past year or two, you’ve likely come across the term “private credit.” It’s one of the fastest-growing corners of the investment world, and it’s increasingly finding its way into everyday portfolios, sometimes without investors fully realising it. So what exactly is it, and what should you understand before investing in it, or investing further?

Private credit, in simple terms
Private credit is, at its heart, lending. Instead of a company borrowing from a bank or issuing bonds on a public market, it borrows directly from an investment fund. That fund pools money from investors, and those investors, in return, receive the interest the borrower pays.

Put another way, when you invest in private credit, you’re not buying a share of a business. You’re acting as the lender. Your return comes from interest payments, and your capital is returned when the loan is repaid.

The “private” part simply means these loans aren’t traded on a public exchange. There’s no daily market price, no ticker to check, and often far less publicly available information than you’d find with shares or listed bonds.

Why has it grown so quickly?
A few forces have combined to fuel the sector’s rapid growth.

Banks stepped back.
Following the Global Financial Crisis, tighter regulation made certain types of lending less attractive for banks. Non-bank lenders moved in to fill the gap, and private credit funds became a major source of finance for mid-sized businesses, property developers and others.

Investors went searching for yield.
Through the long stretch of ultra-low interest rates, traditional income investments like term deposits and government bonds offered very little. Private credit, with headline yields often well above cash rates, looked appealing by comparison.

Access became easier.
What was once the domain of institutions and the very wealthy is now available through platforms, managed funds and even superannuation, with minimum investments in some cases as low as a couple of thousand dollars.

That growth hasn’t gone unnoticed. ASIC has flagged increased retail client exposure to private credit markets as one of its key issues to watch in 2026, noting that retail access is expanding through low investment thresholds and platforms, including superannuation, which is allowing more people to participate in products that are inherently less transparent and, in some cases, more complex. The regulator has also pointed out that private markets are opaque, with limited regulatory reporting in Australia outside of superannuation, and that this constrains supervision and can heighten risks for investors.

To be clear, none of this is a reason to avoid private credit. But it’s a good reason to understand it properly, whether you’re thinking about investing further or wondering why your adviser hasn’t put more of your money into it.

Three simple questions worth asking
Whether you’re already invested in private credit or considering it, these questions will tell you a lot.

Where does the return come from? A yield of 9 or 10 per cent doesn’t appear out of thin air. Someone is paying that interest, and the rate reflects the risk they represent as a borrower. Understanding who the underlying borrowers are, what the loans are secured against, and why they’re paying that rate is the single most important piece of homework you can do.

Can you get your money out if you need it, and how quickly? Private loans can’t be sold at the click of a button the way shares can. Many private credit funds have withdrawal windows, notice periods, or the ability to freeze redemptions altogether in stressed conditions. Liquidity is often the trade-off for the higher yield, and it tends to matter most at precisely the moment you’d want it most.

What happens if a borrower can’t repay, and how is the manager being paid? Defaults are a normal part of lending; the real question is how the fund is positioned when they happen. Is the loan book diversified, or concentrated in a handful of borrowers or a single sector? Is there security to fall back on? It’s also worth understanding the manager’s fees and incentives. Are they rewarded for lending prudently, or simply for growing the pool of money they manage?
If the answers to these questions aren’t clear from the fund’s documents, or from the person recommending it, that tells you something in itself.

What we do for our clients
At Hewison Private Wealth, we’ve always believed that no investment should sit in a client’s portfolio unless we can explain, in plain language, exactly how it works and what could go wrong.

Where private credit is used, that means genuine due diligence: understanding the manager, the loan book, the security structures, the liquidity terms and the fee arrangements, not just the headline yield. It also means sizing it appropriately. Private credit can play a useful role as part of a diversified income allocation, but it should never be relied upon as a substitute for genuinely defensive assets, and no single manager or strategy should make up an outsized portion of your wealth.

Regulator attention on a growing asset class is a healthy thing. For investors, the takeaway is simple: private credit is neither a miracle nor a menace, it’s a lending investment with lending risks. Understand those risks, ask the right questions, and make sure it earns its place in your portfolio.

If you’d like to discuss whether private credit has a role in your portfolio, or want a second opinion on an investment you already hold, speak with your Hewison adviser.