Private credit turmoil | a geographic divide

The Australian private credit market and its US counterpart share a name but little else. Understanding the structural, cultural, and market differences between the two is essential to interpreting the current turmoil — and to understanding why Australian investors should not conflate them.

1. Same road, different paths

The origins of private credit in each market tell an important story.

US private credit emerged following 2013 interagency guidance from the OCC, Fed, and FDIC that flagged leveraged loans above 6x EBITDA as raising supervisory concern. In practice, this pushed banks out of higher-leverage lending and created the funding gap that private credit filled. Australian private credit emerged roughly five years later, in 2018–19, in the wake of the Hayne Royal Commission, which made SME lending materially more onerous from a regulatory and compliance standpoint.

The US market developed to bridge a gap in leveraged finance. The Australian industry developed to fund quality borrowers excluded from the bank market not due to risk, but by regulatory burden.

2. What has happened in US private credit?

If Australian corporate private credit were a flavour, it would be vanilla.

The asset-backed lenders size debt as a percentage of independently valued, tangible assets.

The cashflow lenders size debt at a multiple of earnings, with 2 – 4x EBITDA commonly observed.

In contrast, US private credit funds are now being challenged by a trifecta of high leverage, aggressive loan terms, and AI-driven disruption to their largest sector exposure. Consider the SaaS problem specifically:.

• Around 25% of US private credit lending is to the SaaS sector
• Funds size debt as a percentage of borrower market valuation, with the median at a debt-to-valuation ratio of approximately 40%
• At the time many of these loans were written, SaaS companies were valued at 20x EBITDA or above — implying effective loan leverage of 8x EBITDA or more
• AI disruption has since compressed SaaS valuations and earnings, placing entire loan portfolios at risk

This is further compounded by how EBITDA is defined in practice. Industry sources advise that the EBITDA upon which debt is sized can be materially inflated by addbacks — in one specific example, current EBITDA was reported to include earnings from future contract wins brought forward.

Taken together, and against a backdrop of broader economic uncertainty, this represents a substantial and emerging risk to US private credit investor capital.

3. Liquidity and redemptions

Let’s be honest. Private credit is not a liquid asset class. It says so in the Product Disclosure Statement; in the Information Memorandum; and it is in the name – the “private” in the title is a giveaway. Equally, investors are compensated for this via an illiquidity premium

High profile US private credit funds including Blue Owl and BCRED offered quarterly redemptions capped at 5%, the market standard. The issue wasn't the cap itself; it was that redemption demand exceeded it by a multiple.

This wasn't a liquidity problem; it was a loss of confidence problem. Few asset classes are truly fully liquid. Imperfect liquidity only becomes evident in a market panic.

Australian private credit is a nascent market. Our regulator is increasingly less tolerant of opaque structures, and our investors are less tolerant of outsized risk. Together, this materially limits the conditions that could trigger a similar panic.

4. Market behaviour

The US market is deeper, more competitive, and materially more aggressive.

Listed US private credit funds have seen significant share price falls. In some cases well above 20%, which in theory means the medicine has been taken. Illustratively a 20% share price fall implies a 20% capital loss to investors, which in turn is a proxy for an equivalent write-down in the underlying loan book. If the medicine has been taken, why the continuing negative press?

Speculation includes opportunistic behaviour by sophisticated institutional investors. While Jamie Dimon flags risk in private credit, JPMorgan has been offering hedge fund clients synthetic short positions on the private credit market. In late March 2026, JPMorgan launched its own private credit fund offering 7.5% quarterly redemptions or something "different" to the rest of the market. Coincidence?

Separately, certain hedge fund managers are running open tender offers to acquire private credit fund holdings at deep discounts, while concurrently maintaining a stream of negative market commentary.

Conclusion

The current stress in US private credit is real, but it is the product of a specific set of conditions: aggressive underwriting, inflated leverage, concentrated SaaS exposure, and semi-liquid structures that could not withstand a loss of investor confidence.

Australian private credit — particularly asset-backed lending in the SME and emerging corporate space — does not share these characteristics. The underwriting is more conservative, the leverage is lower, and the regulatory framework is meaningfully more protective of investor outcomes.

For Australian investors, the key is not to conflate geographic labels with identical risk profiles. "Private credit" covers a wide spectrum. It is the equivalent of saying "the ASX" without distinguishing between microcaps and the ASX 50. Where a fund lends, how it sizes debt, and what governs its liquidity management matter far more than the asset class name alone.