Private credit has become a popular income option for Australian investors. The attraction is easy to understand: regular distributions, floating-rate exposure and returns above bank deposits.
But a smooth monthly payment can create a false sense of safety.
Private loans do not trade every day on an open market. Their values often depend on models, assumptions and manager judgement. Withdrawals may depend on loan repayments, available cash or the fund’s ability to sell assets.
That matters now. In June 2026, ASIC said Australia’s private-credit sector was entering its first meaningful test, with tighter liquidity, emerging borrower stress and signs of credit deterioration testing valuations, governance and disclosure. The RBA has also noted strong sector growth, limited visibility and some easing in lending standards.
This is not a reason to panic. It is a reason to look beyond the distribution rate.
Portfolio Impact Summary
| Income role | Private credit can provide regular income and diversification away from listed shares, but the distribution is only useful if loan quality, cash collections and liquidity remain sound. |
| Main risk | Headline yield can hide borrower stress, stale valuations, loan extensions, higher fees, concentration risk and restricted withdrawals. |
| What changed | ASIC’s June 2026 warning says tighter liquidity, borrower stress and credit deterioration are now testing private-credit valuations, governance and disclosure. |
| Action this week | Pick one private-credit holding and review its latest PDS, portfolio update, financial report, arrears, valuation process and withdrawal terms. |
| MyIncomeFactory view | Private credit can still earn a place in an income portfolio, but it should be sized and monitored as credit risk, not treated like cash or a term deposit. |
For an Income Factory investor, the key question is not, “What yield am I receiving today?” It is, “How likely is this income to continue without an unacceptable loss of capital or access to my money?”
Here are eight checks I would use.
1. Understand what is being financed
“Private credit” covers very different loans. One fund may lend against completed industrial property. Another may finance residential developments. Others lend to small businesses, infrastructure projects or highly leveraged companies.
Start with the latest portfolio report, product disclosure statement and financial statements. Look for borrower types, industries, property sectors, geographic spread, loan seniority and average maturity.
You should be able to explain how the borrowers generate the cash needed to repay the fund. Vague phrases such as “strong downside protection” are not a substitute for clear portfolio information.
2. Check the repayment ranking
A loan can be secured and still lose money. The outcome depends on the value of the security, the fund’s ranking and the cost of recovering it.
Senior first-ranking debt is generally repaid before mezzanine or subordinated debt. But even a first mortgage may suffer a loss if property values fall, projects are delayed or receivership costs consume the equity buffer.
Check whether the fund is usually first-ranking, whether other lenders sit ahead of it, how often collateral is revalued and whether valuations are independent.
The higher the promised return, the more important it is to understand why the borrower is paying that rate.
3. Look behind the LVR
Loan-to-value ratio, or LVR, is useful only when the valuation underneath it is realistic.
Suppose a fund lends $65 million against a development valued at $100 million. The stated LVR is 65%. If the realistic sale value falls to $80 million, the effective LVR rises above 81%. Selling costs and completion expenses could reduce the recovery further.
Check whether the stated LVR uses current value, an “as if complete” value, projected gross realisation value or an independent valuation. Also check whether it includes all debt secured against the asset.
For development loans, review presales, cost-to-complete funding, builder strength and contingency allowances.
4. Study arrears, extensions and impairments
Defaults are a lagging indicator. Risk can build while loans are extended, restructured or moved to interest-only terms.
Look for trends in overdue interest, covenant breaches, extensions, restructures, impaired loans, expected-credit-loss provisions and realised losses. Also check whether interest is being received in cash or merely accrued.
One problem loan may be manageable. A growing pattern of extensions among similar borrowers deserves closer attention.
A good manager should explain what changed, what security remains and what recovery action is underway.
5. Ask how the loans are valued
Public-market prices move every day. Private assets can look calmer because they are valued less often.
ASIC’s June warning focused on whether valuations were current, accurate and based on realistic assumptions. This matters most when borrowers are under stress and comparable market transactions are scarce.
Ask who values the loans, how frequently they are reviewed, whether independent parties challenge assumptions and whether impaired assets are marked down promptly.
A unit price that barely moves is not proof of low risk. It may simply mean the assets are not regularly traded.
6. Match fund liquidity with loan liquidity
Private loans may take years to mature, while investors may be offered monthly or quarterly withdrawals. That mismatch must be managed carefully.
Moneysmart warns that withdrawals can be restricted or delayed because underlying loans may be difficult to sell. A fund can be solvent and still struggle to meet a sudden rush of redemptions.
Check withdrawal frequency, notice periods, gates, suspension powers, cash reserves and whether redemptions rely on new investor inflows.
I would not treat an illiquid credit fund as emergency cash, even when withdrawals have historically been processed quickly.
7. Calculate income after fees and losses
The borrower’s interest rate is not the investor’s return.
Private-credit structures can include management fees, performance fees, establishment fees, financing costs and fees charged by underlying funds.
The useful calculation is:
- gross interest and fee income
- minus credit losses and provisions
- minus management and performance fees
- minus operating and financing costs
- equals income available to investors.
Check whether the displayed distribution is after fees, annualised from one month, supported by cash income or partly funded from capital and reserves.
A slightly lower distribution may be more dependable when it is covered by recurring cash income.
8. Decide what job it performs in the portfolio
Private credit should be assessed beside dividend shares, ETFs, LICs, cash and other credit investments.
It may add monthly income, floating-rate exposure and diversification away from listed shares. But several funds can still hold similar loans, use the same valuers or depend on the same property and refinancing conditions.
Map each holding by manager, borrower sector, property type, loan seniority, geography, maturity and liquidity terms.
Different fund names do not always mean different risks.
A realistic example
Imagine Michael holds three private-credit funds paying monthly distributions.
Fund A lends mainly against completed commercial property. Fund B finances residential developments. Fund C holds diversified corporate loans.
After reading the latest reports, Michael finds that Funds A and B both have large Victorian property exposure. Fund B also has several extended loans. Fund C is better diversified but allows withdrawals only quarterly and can defer them.
Michael does not sell everything. He pauses automatic reinvestment into Fund B, holds more cash outside the funds and starts tracking impairment levels, extensions, distribution coverage and withdrawal terms.
The portfolio is not risk-free. It is more deliberate.
Common mistakes
Avoid comparing private credit with a term deposit using yield alone. They do not offer the same liquidity, capital protection or government guarantee.
Do not assume monthly income means monthly access to capital.
Do not treat a stable unit price as proof of safety.
Do not rely only on manager commentary when formal reports and audited accounts are available.
And do not concentrate too heavily in one manager or lending sector simply because distributions have been reliable in the past.
What I’d check this week
Choose one private-credit holding and find its latest PDS, portfolio update and financial report.
Record:
- The largest borrower or sector exposures.
- The proportion of senior and subordinated loans.
- Recent arrears, impairments and extensions.
- The valuation method and frequency.
- Withdrawal terms and suspension powers.
- Total fees and costs.
- Whether the distribution is covered by recurring income.
- The holding’s portfolio weight and overlap with other credit funds.
If several answers are difficult to find, that is useful information in itself.
Key takeaway
Private credit can still earn a place in a diversified Income Factory.
But dependable income is not created by a smooth distribution alone. It comes from sound borrowers, sensible loan structures, realistic valuations, adequate liquidity, aligned governance and sensible portfolio sizing.
ASIC’s warning does not mean every fund is in trouble. It means the easy-growth phase may be ending and manager quality is likely to become more visible.
This is when income investors should become more selective, not necessarily more fearful.
Read more practical income-investing analysis at MyIncomeFactory.com and follow along for future portfolio reviews and research.
Sources and further reading
- ASIC: private credit notice ahead of 30 June valuations and reporting, published 18 June 2026.
- ASIC public and private markets resource page.
- ASIC Moneysmart: what is private credit?, checked 9 August 2026.
- ASIC Moneysmart: what is a managed fund?, updated 1 July 2026.
- ASIC Moneysmart: choosing a managed fund, updated 1 July 2026.
- RBA Financial Stability Review, March 2026: resilience of the Australian financial system.
- RBA Financial Stability Review, March 2026: households and businesses.
General information disclaimer
This article is for educational and general information purposes only. It does not consider your objectives, financial situation or needs and is not personal financial advice. Before acting, consider whether an investment is appropriate for you and read the relevant disclosure documents. Consider seeking advice from a licensed financial adviser.