Private Credit: Selectivity Matters More Than Ever
This article is a build on our Private Credit Series Part 1 (September 2024).
Private credit isn’t broken, but recent stresses are making the difference between good and poor lending much easier to see.
Four things to know
Stay selective, not sidelined. The long-term case remains intact, but knowing exactly what you own matters more than the decision to own the asset class. .
Separate the risks. A borrower default, a valuation concern and a liquidity restriction can look similar in a headline but tell us very different things.
Good lending should become more valuable. Greater dispersion creates risks, but also opportunities for experienced managers and investors who can tell the difference, which is why experience through prior cycles matters more now than during the growth phase of private credit.
Why Anseres is well positioned to outperform through this cycle:
We're inside the market, not just watching it: Regular direct engagement with fund managers across Australia and offshore.
We see flow before it's reported: Broker, family office, placement agent and administrator networks surface capital movement ahead of fund-level disclosure.
We've sat inside the machine: Team experience working within managers that ran private-debt businesses, plus a CIO with 30+ years across multiple credit cycle.
We read the cycle top-down and bottom-up: Institutional, family office, HNW and adviser flow signals combined with bottom-up credit judgement.
The bottom line today
Our strategic view of private credit has not changed. We favour the asset class on a risk-adjusted basis. But "private credit" now covers hundreds of different lending strategies with very different risk. The question has shifted from how much private credit to own, to which private credit you own.
What it means for you as an Anseres client
We don't just target a headline return. We select strategies with strength in the four ‘C’s of credit. You can see we look for in each direct private credit fund we select and how these come together in our actively managed Anseres Private Income Fund.
· Capacity: How long is the loan exposed to conditions changing? We favour managers whose loan books run short, particularly in real estate credit, it’s not unusual to see 7–9 months loan duration. Shorter duration means less exposure to a rate view, a construction timeline or a market condition being wrong.
· Collateral: What's actually behind the loan, not just the ratio. A conservative-looking LVR means little if the asset behind it is hard to sell, half-built, or concentrated in one location. We look behind the number to asset type, quality and saleability.
· Covenants: How often is the loan actually checked against the loan contract rules agreed to (ie the covenants)? A covenant is only useful if someone is watching it. We track how frequently managers monitor covenant compliance, not just whether covenants exist on paper.
· Character: Who is the borrower, really? Track record, conduct through past cycles, and willingness to work constructively with a lender when conditions turn. This is the hardest ‘C’ to quantify and the one experience matters most for.
We add a fifth ‘C’ for our Anseres Private Income Fund
· Cyclically aware: We manage the portfolio of private credit strategies aware of the cycles each is undergoing. That’s why we currently have zero weight to US direct lending and we added a private credit secondaries strategy to take advantage of market disruption.
The environment for private credit has changed
Interest rates have moved, regulators have increased scrutiny, liquidity has been tested and some weaker lending decisions are becoming visible. In many respects, these are the conditions we have been preparing for. They should make differences in underwriting discipline, security, liquidity structure and workout capability easier to see.
Private credit is not one investment. It encompasses hundreds of managers lending to different borrowers, against different assets, with different security, leverage, liquidity and return characteristics. The question is therefore becoming less about how much private credit investors should own, and more about whether they own the right private credit.
Why it matters
There are real warning signals. But putting them all under the heading of “problems in private credit” misses some important distinctions.
Credit risk: Higher financing and construction costs are putting pressure on some borrowers and exposing lending decisions that were made in easier conditions.
Liquidity risk: Some private-market vehicles have restricted or slowed redemptions. That does not necessarily mean their underlying loans are impaired. It does remind investors that illiquid loans need appropriately patient capital.
Valuation risk: Private assets are not continuously priced. Smooth reported returns should not be confused with an absence of underlying economic risk.
Regulation: ASIC has increased its scrutiny of private markets, while the RBA has examined potential financial-stability risks. Higher standards of transparency, governance and liquidity management should ultimately strengthen the market.
Go deeper
The headlines tell us something is changing. The more interesting question is what.
In the following pages, we look beneath recent events to separate credit stress from liquidity stress; examine why a borrower default does not automatically mean a lender made a poor investment; consider what redemption restrictions actually tell investors; and explain why security, workout capability and the structure of the investment vehicle matter. We then turn to where we see crowding and opportunity across private credit, what makes Australia different, and why we believe the next stage of private-credit investing will require more active portfolio construction.
What changes from here?
We expect greater dispersion.
Large capital inflows and unusually low defaults were never going to make every private-credit strategy equally attractive indefinitely. As loans season, borrowers are tested and competition changes, differences between managers should become increasingly visible.
That shifts the emphasis from simply allocating to the asset class towards manager selection, diversification and active portfolio construction.
For disciplined investors, that can create opportunity as well as risk.
The question has changed
I recently attended a private-credit conference where a discussion between institutional asset owners was held under Chatham House Rules. One observation captured how sophisticated investors are now thinking about the asset class.
Allocators have stopped asking “how much private credit?” and started asking “how good is the manager?”
That is an important change.
During the rapid growth of an asset class, the allocation decision can dominate attention. As the market becomes larger and more competitive, the quality of underwriting, security and portfolio construction matters much more.
During the growth phase of an asset class, capital allocation itself can be the dominant decision. Later in the cycle, selection of manager, strategy and the quality of underwriting becomes much more important.
Capital has flowed aggressively into some of the most scalable areas of private credit. That competition can compress the spread investors receive for taking credit risk. At the same time, loans written during the strong 2021–24 period are getting older and borrowers have had to live with higher interest costs for longer.
Disruption from AI across industries also calls into question whether loans to software companies and other disrupted sectors have deteriorated in quality since their loans were underwritten. The result should be greater dispersion across private credit managers and their funds. Good underwriting should start to matter more than simply having been in the right asset class.
Private credit is not one market
One problem with much of the commentary around private credit is that the term has become so broad that it sometimes loses its meaning.
Australian private credit includes residential and commercial property lending, land and development finance, corporate lending, lending to financial businesses, family-owned companies, agriculture, asset-backed finance and an expanding range of specialty lending strategies.
Internationally, the market looks different again. The United States dominates global private credit and has a particularly large market in sponsor-backed corporate direct lending, where private lenders finance companies owned by private-equity firms.
These markets do not all have the same risks, and they do not offer the same opportunity.
One of the strongest messages from institutional investors at the conference was that large-ticket sponsor-backed direct lending has become one of the most crowded areas of the market. Capital inflows have compressed spreads. This is an area that we have avoided to date, as we were averse to too much capital being deployed too quickly.
Scale is not automatically an advantage. Some large listed and global managers that were once able to build highly selective portfolios now face a different commercial imperative: continually raising and deploying very large pools of capital. That can turn an opportunity-led strategy into an allocation-led one. We are particularly cautious where rapid private-wealth fundraising, pressure to deploy and product growth appear to be running ahead of the supply of genuinely attractive loans.
The same discipline applies to return targets. When spreads compress and the supply of good credits becomes scarce, a manager determined to preserve a headline return can only do so by finding genuine complexity premia, using more leverage, accepting weaker documentation or moving up the risk curve. We prefer managers willing to let returns fall rather than quietly relax underwriting standards.
Not all private credit is equal. Increasingly, the opportunity lies in knowing where not to lend
Australia is different
Australia also should not simply be viewed as a smaller version of the US private-credit market. Our market is fragmented.
Alongside large institutional managers sit property lenders, mortgage funds, specialist corporate lenders, asset-backed financiers, agricultural lenders, family-office-backed pools and smaller lending groups that may barely appear in conventional industry surveys.
Over several years we have built our own database of more than 300 Australian private-credit funds and continue to identify potential managers and lending pools before they become widely marketed. That work has reinforced an important lesson: the market investors see through ratings, platforms and headlines is only part of the Australian private-credit ecosystem.
This fragmentation creates risks. Standards of governance, valuation, reporting and underwriting vary considerably. But it also creates opportunity for investors with the resources and networks to look beyond the obvious managers.
Australia also has structural features that can be helpful to well-secured lenders. A properly documented secured creditor can, subject to the terms of its security and applicable law, appoint a receiver to take control of secured assets and realise them for repayment. The national PPSR framework also supports the registration and priority of security interests over personal property. We would describe this as a comparatively practical secured-creditor framework rather than simply calling Australia 'creditor friendly': recovery outcomes still depend on documentation, priority, collateral value, project complexity and the behaviour of other stakeholders.
Liquidity is not the same as credit risk
The recent attention on redemption gates also highlights an important distinction.
A useful current example is MA Financial’s $2.3 billion Secured Loan Series. MA Financial says the fund has no exposure to Bathla Group and that it had previously declined numerous lending requests from Bathla. Yet on 25 August it introduced a temporary limit under which the aggregate amount available to meet redemptions is capped at up to 1% of the fund’s assets each month. The measure was described as proactive and designed to manage the potential for increased redemption activity as sentiment weakened across residential real-estate credit. Importantly, this is not evidence that the underlying loans have suddenly stopped performing. It illustrates how liquidity pressure can travel through an investor base even when the credit event attracting attention sits somewhere else in the market
A loan can be performing perfectly well and still be illiquid
Private-credit funds typically own loans that cannot be sold tomorrow at a transparent screen price in the way an ASX-listed share or government bond can.
Yet some investment vehicles offer investors periodic opportunities to redeem.
Usually that arrangement works well. Problems arise when many investors ask for their money back at the same time. A fund then has choices: hold sufficient cash, sell loans, borrow temporarily, queue redemptions or use a gate.
The word “gate” understandably sounds alarming. But a properly designed gate can protect remaining investors by preventing a manager from becoming a forced seller of good assets merely to satisfy investors who want their money immediately.
That does not mean gates should be ignored. The deeper issue is liquidity mismatch.
Patient, illiquid assets need appropriately patient capital. A portfolio of five-year private loans cannot economically promise the same liquidity as a portfolio of listed securities.
This means we increasingly examine not only the underlying loans but also who owns the fund, the redemption terms, available liquidity and how the manager would respond if many investors requested their money simultaneously.
In private markets, the question is not only what you own. It is also how you own it, and who might need liquidity first.
A CIO Framework in our 28 August weekly note to wealth advisors adds another way to think about the same issue: private investments operate on two clocks. The economic clock moves continuously as borrowers, collateral and liquidity conditions change; the reporting clock moves when valuations, distributions or redemption arrangements are updated. Smooth reported returns can reflect sound underwriting and patient capital, but they should never be mistaken for proof that risk is absent.
Regulation is raising the bar
ASIC substantially increased its focus on Australian private credit during 2025, including surveillance, industry reports and stop orders affecting individual funds. Its work highlighted legitimate issues around disclosure, valuation, fees, conflicts, governance and how risk is communicated to investors.
Importantly, ASIC's work has not amounted to declaring private credit inherently unsafe. Its December 2025 work instead brought together principles around how existing obligations should be applied to private credit and mortgage fund structures. That distinction matters.
Greater regulatory scrutiny can be uncomfortable for an industry experiencing rapid growth, but higher standards of transparency, valuation, governance and disclosure should ultimately strengthen the market.
Our own research also suggests the Australian universe is broader and more fragmented than can easily be captured by regulatory or conventional industry datasets. That makes ongoing market surveillance important.
The right conclusion is therefore neither that regulators are overreacting nor that every regulatory concern signals systemic trouble.
It is that the bar is rising, and better managers should welcome that.
Credit losses test underwriting, not the asset class
Credit investors should expect defaults.
A private-credit market in which nobody ever defaults would probably tell us that lenders were taking too little risk, or that the cycle had not yet been tested.
We are beginning to see more stressed borrowers and individual defaults reported in the media. That is not surprising. Some will expose unwise lending, weak process or poor risk management; others will reflect the normal reality that credit involves lending into an uncertain future. The distinction matters because our approach has been built around anticipating these outcomes rather than assuming they will never occur.
One default is not evidence that an entire asset class is impaired. Nor does a headline about one troubled borrower tell us very much about hundreds of unrelated loans across property, corporate, agriculture and specialty-finance markets.
At the other extreme, it would be complacent to assume that because aggregate defaults remain manageable there is nothing to worry about. The more useful questions are different.
Was the risk priced properly? Was the loan adequately secured? Did the manager structure covenants appropriately? Was the portfolio diversified? And, when something went wrong, could the manager work the loan out and recover investors' capital?
This is where experience through previous lending cycles becomes valuable.
Making a loan is relatively easy. Getting your money back when the original plan fails is the real test of a lender. Its much better to have experienced managers monitoring loans closely and working with the management team of their lenders to take early corrective action. Only once all early pathways of resolution have played out should the manager take action to seek recovery by taking control and liquidating or restructuring.
We are also sharpening our view on where security can prove less protective than it first appears. Large apartment and development projects deserve particular scrutiny because builder failure, cost overruns or completion delays can extend loan tenor, increase interest and holding costs, and reduce the practical value of an apparently conservative loan-to-value ratio. Security matters, but so do completion risk, sponsor equity, contingency, presales, builder strength and the lender's ability to control a workout.
What institutional investors are telling us
Institutional investors tend to behave differently from individual investors because their liabilities, governance and investment horizons are different.
The institutional investors we heard from remain significant allocators to private credit. Conference survey data suggested industry superannuation funds represented had increased average allocations from around 5% to approximately 8% over the previous two years, with considerable variation between funds. However, they are becoming increasingly selective.
Australian institutional investors, dominated by super funds, have allocated pretty fully to US and international direct lending to corporates. Now they are looking to diversify into asset backed lending strategies. We watch their allocation moves and weight of capital closely.
They see the Australian market as substantially smaller and less diverse than the combined US and European opportunity set, particularly when they need to deploy hundreds of millions of dollars at a time. They are also paying closer attention to the composition of a manager's investor base.
A fund dominated by investors who may all seek liquidity simultaneously can behave differently under stress from one backed by patient institutional capital.
This does not make retail or private-wealth capital inherently bad. It makes investor behaviour another risk factor worth underwriting. That is a subtle but important evolution in private-credit due diligence and one of our screening questions early on in filtering funds onto our short lists.
Defaults also need to be interpreted carefully
Bathla is a useful example. Having exposure to a borrower that subsequently defaults is not, by itself, evidence of poor underwriting. Different lenders can sit in very different positions, with different security, leverage, pricing, covenants and prospects for recovery. A manager with a strongly secured position may ultimately have taken less risk than another manager with no Bathla exposure but weaker underwriting elsewhere in its portfolio. Equally, having no exposure should not automatically be treated as a badge of honour.
The more revealing questions are why a manager lent or declined to lend, on what terms, what risks it identified, how it sized and structured the exposure, and what it expected to happen if the original repayment path failed. There is also a less tangible consideration. Even a strongly secured lender to a large and highly interconnected borrower needs to weigh the potential concentration, liquidity and reputational consequences if things go wrong.
Good credit judgement therefore cannot be reduced to a list of who was exposed and who was not. The real test is whether the risks were understood, appropriately priced and structured, and whether there is a credible pathway to recover capital when the original plan does not work.
Defaults can have consequences beyond investors
There is another reason this distinction matters. Bathla has been a significant developer of lower-cost housing in Western Sydney, with around 2,000 dwellings reportedly under construction and a much larger development pipeline; some projects have also included specifically designated affordable housing. Its difficulties therefore matter beyond the lenders and investors directly exposed.
Australia is already seeking to materially increase housing supply. If otherwise viable developments stall, the consequences can extend to homebuyers, builders, subcontractors, suppliers and service providers, while delaying the delivery of much-needed housing. The best credit outcome and the best economic outcome need not be in conflict. Where projects remain viable, an orderly workout that preserves value and allows construction to continue may ultimately produce better recoveries for secured lenders while also limiting these wider economic and social costs.
This is also where experienced workout capability matters. The optimal response to a default is not necessarily to enforce security as quickly as possible. It may involve providing additional funding, restructuring a loan, bringing in new capital or a new developer, or allowing additional time for a project to reach completion. Government may also have a facilitating role where viable housing projects risk becoming stranded, not by protecting equity holders or socialising private credit losses, but by helping remove planning, coordination, infrastructure or financing obstacles that prevent projects from being completed.
The objective of good credit management is therefore not simply to avoid defaults. It is to structure investments so that when problems occur, capital is protected and as much underlying economic value as possible can be preserved.
From allocation to active portfolio construction
This leads to what we think is the next stage of private-credit investing. The first decision was whether to allocate to private credit. The second was which managers to select.
Increasingly, we believe there is a third decision: How should the private-credit portfolio itself be actively managed?
A static allocation across several funds provides manager diversification, but it does not necessarily provide genuine diversification of underlying credit risks.
Five managers can all be lending to similar borrowers, chasing the same property developments or competing for the same sponsor-backed corporate loans.
The labels can be different while the underlying economic exposure is remarkably similar.
We therefore prefer to think about private credit as a portfolio of underlying lending exposures: property, corporate, asset-backed, specialty finance, agriculture, geography, borrower size, security, duration, liquidity and manager skill. Those allocations should not necessarily remain constant through every stage of the cycle.
This is the role we intend the Anseres Private Income Fund (APIF) to play: not simply aggregating manager exposures, but dynamically allocating across private-credit segments as relative value, underwriting standards, liquidity conditions and risk concentrations change. Active management should include the ability to add to areas where scarcity of capital improves lender economics and reduce exposure where capital inflows are compressing spreads or weakening structures.
Experience matters here
Experience matters most when markets become less forgiving. Active private-credit portfolio construction requires more than comparing fund returns, ratings and manager presentations. Our team brings an unusual combination of long investment experience, direct experience working within fund managers that themselves operated real-estate private-credit businesses, and bottom-up credit expertise spanning structured credit and corporate bond investing.
That experience is complemented by networks extending beyond fund managers themselves. We maintain relationships across the broader private-credit ecosystem, including commercial finance and property-debt brokers, originators and adjacent service providers who see lending activity at the coalface. These relationships can provide another perspective on where capital is flowing, where competition is increasing, how lending terms are changing and where stress may be emerging before it becomes obvious in fund-level reporting.
Together, this gives us a perspective from multiple sides of the market: understanding how managers originate, structure and manage loans; assessing the underlying credit from the bottom up; and observing how conditions are changing across the broader lending ecosystem. Many allocators necessarily rely heavily on external consultants, ratings and manager-reported information. We believe there is considerable value in combining those sources with direct market experience and networks.
That experience matters most when markets become less forgiving: it helps us distinguish between a good asset temporarily facing pressure, a poorly structured investment, and a risk that should never have been taken in the first place.
Our Private Credit Principles
We believe in:
Underwriting before yield - we will not accept weaker credit simply to preserve a return target.
Security and structure that work in stress - enforceable documentation, sensible leverage, covenants and a realistic path to recovery matter as much as the headline LVR.
Proven workout capability - we want managers who monitor early, intervene before value leaks away and have demonstrated they can recover capital when the original plan fails.
Portfolio and liquidity discipline - diversification must exist beneath fund labels, and the liquidity promised to investors must be credible relative to the liquidity of the underlying loans.
Sub sector cycle awareness - investing carefully or avoiding where capital is too plentiful and yield spreads don’t compensate for risk, and conversely leaning in and overweighting where capital is not crowded and yields have better relative value for risk.
Our current positioning reflects these views
For example, we presently have no exposure to US upper-middle-market corporate direct lending where large volumes of private-wealth capital have entered the market and competition has compressed the compensation available for taking risk.
That does not mean every loan in that market is poor. It means we currently see more attractive risk-adjusted opportunities elsewhere.
We favour diversification across managers and lending strategies, strong and enforceable security and documentation, specialist origination, managers with demonstrated workout capability, and areas where complexity or scarcity of capital still allows lenders to be properly compensated. We are cautious about crowded upper-middle-market direct lending, strategies dependent on relentless deployment, and property development exposures where builder, completion or refinancing risk can turn a short-duration loan into a much longer workout.
And we believe an actively managed fund-of-funds approach through APIF is increasingly preferable to making a static allocation to one manager, or assembling several funds and assuming the portfolio is diversified. It gives us a mechanism to change segment weights as opportunity and risk migrate across the market.
What should investors do?
For wealth-management clients, the first step is not to react to every headline.
Instead, understand what you own.
Ask your adviser:
What types of borrowers am I actually lending to?
What security sits behind the loans?
How diversified is the portfolio beneath the fund labels?
How much liquidity does the fund promise compared with the liquidity of its loans?
Who are the other investors in the fund?
Has the manager lent through a difficult credit cycle?
What happens when a borrower cannot repay on time?
Where are spreads being compressed because too much capital is chasing the same loans?
And, most importantly, am I still being adequately paid for the risks I am taking?
If those questions cannot be answered clearly, ask for more information.
Private credit is an asset class where understanding the structure matters.
The bottom line
Private credit is here to stay because the economic need it fulfils has not disappeared. Banks cannot and will not provide every loan required by businesses, property owners and other borrowers. Private lenders therefore remain an important part of the financial system.
The important change is not that private credit has suddenly become unsafe. It is that the market is now making differences in lending discipline, liquidity design and manager behaviour easier to observe.
Capital has arrived, competition has increased, regulators are paying attention and liquidity structures are being tested. Recent events are exposing some of the unwise lending, weak process and poor risk management that disciplined investors should always have assumed would eventually be tested. That creates dispersion and reinforces rather than changes our selection framework.
Private credit is not one trade. It is hundreds of different lending strategies, managers, borrowers and structures. Greater dispersion is not necessarily a reason to reduce exposure. It is a reason to insist on selectivity, security, diversification and active management.
For us, that means retaining strategic exposure to private credit while actively diversifying across managers, borrowers and lending strategies; dynamically allocating through APIF; remaining disciplined about liquidity; avoiding crowded markets where spreads no longer compensate adequately for risk; and allocating capital toward areas where specialist underwriting, strong security and scarcity of capital continue to command a premium.
The question is no longer simply whether to own private credit, it’s much more focussed now about whether you own the right private credit.
Further Reading
For readers wanting to understand the foundations behind this view:
“What is Private Credit”, Anseres Capital (Partners Private paper), April 2024
Our introduction to the asset class, its portfolio characteristics and principal risks.“Private Credit Series Part 1: The What, Why and How of Private Credit”, Anseres Capital (Partners Private paper), September 2024
How bank regulation, market structure and changing borrower behaviour created the modern private-credit market.“Private Credit in Australia”, ASIC Report 814, September 2025
“Private Credit Surveillance Report”, ASIC Report 820, November 2025
“Growth in Global Private Credit”, Reserve Bank of Australia, October 2024