Australia's private credit market enters a new phase

After a decade of rapid growth, Australia's private credit market is entering a new phase where resilience, governance and execution are becoming as important as deployment.

In brief:

• Australia’s private credit market has matured into a core funding source, with success increasingly tied to resilience, risk discipline and execution.
• Economic volatility is placing greater emphasis on underwriting quality, portfolio management and the ability to support borrowers through stress.
• As the sector grows, investors and regulators are demanding stronger governance, transparency and valuation practices to support long-term confidence.

Australia's private credit market entered 2026 having firmly established itself as a core component of the country's corporate financing ecosystem. Following a decade of rapid expansion, private credit has evolved from an alternative source of capital into a mainstream funding solution for businesses across a range of sectors.

EY-Parthenon's latest analysis estimates Australian private debt assets under management (AUM) reached A$234.5 billion in 2025, highlighting the growing significance of the asset class within Australia's capital markets.

However, a lot has changed in the last 6 months:

• Middle east conflict
• Oil shock and CPI inflation
• Cash rate increased from 3.6% to 4.35%
• Rising offshore private credit defaults

In this context, as the market continues to expand, the conversation is increasingly shifting from growth toward resilience, credit quality, governance and performance through the cycle.

From growth to resilience

After several years of strong growth, 2026 has marked an important test of resilience for the private credit sector. While many funds continue to perform well, market conditions have become more challenging, exposing differences in portfolio quality, underwriting discipline and risk management approaches.

Private credit remains particularly important in sectors where traditional lenders have reduced their appetite, including real estate, construction and asset-backed lending. At the same time, higher construction costs, project delays, refinancing challenges and ongoing economic uncertainty have increased pressure on some borrowers and sectors.

These conditions have reinforced the role of private credit as a flexible and responsive source of capital. The ability to provide tailored financing solutions, particularly in more complex or transitional situations, continues to be a key differentiator for the asset class.

Navigating a more uncertain environment

Heightened geopolitical tensions and ongoing macroeconomic uncertainty continue to influence market conditions through their impact on energy prices, supply chains, inflation expectations and business confidence.

For lenders and investors, this environment has reinforced the importance of disciplined underwriting, downside protection and liquidity management. New transactions are increasingly subject to rigorous due diligence, enhanced covenant structures and a greater focus on downside risk analysis.

At the same time, well-capitalised private credit managers with available capital are finding attractive opportunities to provide refinancing, growth funding and bespoke financing solutions to businesses seeking certainty and flexibility in a more volatile environment.

Restructuring capability becomes a differentiator

Corporate distress remains elevated across a number of sectors, including construction, property development, hospitality, retail, transport and logistics. As private credit has increasingly filled the financing gap left by bank retrenchment, private lenders are becoming more involved in restructurings, recapitalisations and workouts that have traditionally been led by banks.

This evolution highlights the growing importance of active portfolio management, sector expertise and restructuring capability. As market conditions become more selective, the ability to work constructively with borrowers through periods of stress is becoming an increasingly important competitive advantage.

For investors, this reinforces the importance of understanding not only how capital is deployed, but also how managers respond when investments face operational or financial challenges.

Governance and transparency in focus

As the sector continues to mature, governance and transparency are receiving greater attention from investors, regulators and market participants.

ASIC has increased its focus on areas including valuation methodologies, disclosure practices and governance frameworks, reflecting the growing importance of private credit within Australia's financial system. Poor practices in private credit are a 2026 ASIC enforcement priority, and ASIC recently called on funds to ensure their 30 June asset valuations are current, accurate and grounded in realistic assumptions.

For fund managers, this places greater emphasis on demonstrating robust valuation processes, effective credit monitoring, sound liquidity management and clear investor communications.

Importantly, the regulatory focus reflects the increasing significance of the sector rather than concerns about private credit as an asset class. As private credit continues to expand, governance practices and transparency standards will be expected to evolve in parallel with market growth.

Outlook

Private credit remains a structurally important and growing component of Australia's capital markets. While growth is expected to continue, the market is increasingly operating in a more disciplined and selective environment - a characteristic that many participants view as a sign of maturation rather than contraction.

As the market develops, performance dispersion among managers is likely to become more pronounced. Managers with disciplined underwriting frameworks, active portfolio management capabilities, diversified portfolios, strong governance practices and deep sector expertise are expected to be best positioned to navigate evolving market conditions and capture emerging opportunities.

For borrowers, capital remains available, although lenders are placing greater emphasis on transparency, realistic forecasting, cash flow resilience and prudent leverage levels.

More broadly, private credit's evolution in Australia is shifting the conversation from access to capital toward the quality of capital. As the market matures, differentiation is likely to be driven less by the availability of funding and more by the strength of underwriting, governance, risk management and the ability to manage complexity through the credit cycle.

In that sense, the current environment may prove to be less a test of the asset class itself and more a test of execution.

We look forward to undertaking our 2026 market survey over summer and sharing further insights into the trends shaping Australia's private credit market.