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Recent reports have shown that the private debt market in Australia is valued at around $188 billion in assets under management (AUM), as of the end of 2023. This figure stood at $175 billion the year prior.
Meanwhile, as of 2024, 12 per cent of the total AUM (or $112 billion) is business-related loans and 16 per cent ($76 billion) is commercial or real estate loans.
According to Gavin Solsky, managing director of Global Credit Investments (GCI Funds), the growing demand is due to economic pressure and tighter regulation.
“Private credit has been a vital part of global financial markets for decades, but its prevalence and accessibility in Australia had been relatively low until recent years. The shift driving Australian private credit began with tighter banking regulations following the global financial crisis, which restricted traditional lenders’ capacity to fund certain borrowers,” said Solsky.
“As financing needs become more bespoke and traditional banking more vanilla, businesses increasingly value private credit for its flexibility, speed, and ability to navigate nuanced financial situations. In the real estate sector, the ongoing challenges of post-pandemic recovery, combined with a need for certainty in funding, have further driven businesses towards private credit as a reliable alternative to traditional finance.
“Increased demand also reflects a broader shift in borrower priorities: certainty, speed, and tailored solutions now in many instances outweigh interest rate considerations, particularly in sectors like real estate and asset-backed finance.”
The commercial and asset finance space in particular is seeing the benefit in turning to a private credit lender. Solsky attributes this to the increased red tape found with traditional lenders.
“With tighter regulations and slow rigid decision-making processes, traditional lenders struggle to provide the flexibility and speed the commercial market requires,” Solsky said.
“Borrowers value our ability to see through complex transactions and offer tailored solutions that traditional lenders often cannot. Our founder-led decision-making process ensures we can provide a quick and clear response, which is becoming increasingly important for borrowers looking to move their businesses forward with confidence.”
Despite this, there are risks involved with private credit. Reduced transparency and higher interest rates are often the glaring issues, making them “high-risk investments,” said RSM partner Grace Bacon.
“Private markets are less transparent compared to publicly traded assets, making it harder to assess the true value and risk of investments. What we can tell you is that there’s generally a significant premium to safer assets embedded in the high interest rates and fees they charge. While the fund managers are well credentialed with rational processes, they have not experienced a downturn in Australia meaning their risk mitigation skills are untested,” said Bacon.
“While many funds will probably make money, some are already experiencing loan repayment issues and have stopped paying distributions and limited or frozen redemptions.”
Solsky said that borrowers should be wary of the lender in question and ensure track records are positive.
“Before deciding to use private credit for real estate projects, borrowers should ensure the lender has a deep understanding of the real estate market and a track record of delivering flexible, tailored solutions. It’s essential that the lender provides certainty in funding and maintains clear communication, particularly when navigating market complexities,” he said.
“Borrowers should also be mindful of the lender’s ability to adapt to changing project needs and the speed at which they can deliver solutions to keep the project on track.”
[Related: Private credit a ‘sharp double-edged blade’ for Australian investors]
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