Strike riskier private credit while the irony stays hot

Australia’s private credit market is officially irresistible. Global investors that have shown up too late to devour the best slice (debt backed by mouth-wateringly stable Australian real estate) are fast converging on riskier niches. Msquared Capital Co-Founder & Fund Manager Paul Miron explores the appeal – and highlights one risk he thinks could derail the markets’ cautious optimism.

I joined some of the largest names in private credit globally at the Australian Securitisation Forum this past week. It was a rare chance to take the pulse of investor sentiment towards Australia. What I heard confirmed what I already see in the market: Australia is emerging as one of the brightest stars in global debt markets, but the opportunities are unevenly distributed, and the risks are often misunderstood.

Over the past 12 months, $80 billion worth of Australian securitisation instruments were issued. That record number reflects extraordinary investor demand, both internationally and here in Australia. Yet demand is outstripping supply, forcing larger players to move up the risk curve in search of exposure.

The real story lies in why the Australian market is attracting unprecedented global interest.

As someone who has navigated both Australian and international credit cycles, I see Australia’s resilience as no accident. It is the product of conservative lending structures, strong regulatory oversight, and a property market that has proven uniquely stable.

An economist at the Forum reported that even Sydney’s sharpest property correction has been just 9% peak-to-trough – a minor adjustment compared to the volatility seen elsewhere.

The irony of global capital

I can be a little bearish and it takes a lot to shock me. But I was surprised to hear one of the world’s largest global fund managers express regret at not entering the Australian market earlier.

The reason is simple: a secured private credit supply is finite and valuable in terms of risk; if they take up a reasonable position, they would further squeeze margins in what is already a highly demanded investment product.

Secured private credit – particularly property-backed lending – is saturated from an institutional level. The competition is fierce, margins are tightening, and late entrants are finding themselves pushed into less traditional segments.

These late entrants are turning to unsecured personal loans, credit card portfolios, and auto finance.

The irony here is striking: investors were once deterred by Australian conservatism but now find themselves chasing our riskier segments.

These are the exact segments in the US that have been called out for being the domain of ‘private credit cockroaches’; one collapse signals many more lurking.

The US auto finance fiascos, from PrimaLend Capital to Tricolour Holdings, prove the point. Of course, the reasons for this are complex, but I will note listed credit funds in the US now trade at steep discounts, which perhaps reflects market expectations of further losses.

Australian property makes our credit market unique (and irresistible)

Australia has a relatively stable $12.5 trillion property market. Our private credit is up to 80% property-backed, compared to the US where corporate and non-recourse debt dominates.

That distinction matters. Property-backed lending provides collateral that behaves differently under stress, offering far less contagion risk.

• Conservative lending behaviour: Personal guarantees remain mandatory, unlike the non-recourse lending common overseas.
• Resilient property markets: Even Sydney’s sharpest correction has been just 9%, a minor dip compared to global volatility.
• Robust regulation: ASIC and APRA’s oversight ensures weaker operators are weeded out, protecting both investors and borrowers.

These fundamentals explain why global capital is flooding into Australia. Investors are chasing stability.

But discipline is key. Not all private credit is equal, and not all collateral is created equal. Second mortgages, construction loans, rural properties and specialised securities carry higher risk profiles. Investors who fail to distinguish between them have greater risk of capital loss.

Black swans that test Australian resilience could still emerge offshore

Optimism must be tempered by realism. I see several red flags emerging:

• Recent collapses in subprime exposed sectors in the US – including a car leasing group and a parts supplier – highlight escalating contagion risk that the lower socio-economic part of the debt spectrum is more vulnerable.
• Car repossessions are at their highest since the GFC in the US.
• Global sovereign debt ratios are at post-war highs in many markets.

These are reminders that resilience is not immunity.

Australia’s strength rests on low unemployment and disciplined lending.

We should be mindful that inflation surprised at 3.8% in Australia, likely keeping monetary policy tight.

A black swan event could still test the system.

Regulation is Australia’s competitive advantage

Regulation, often seen as a burden, is in fact one of Australia’s competitive advantages. Private markets are in the process of cleaning house – but our baseline remains strong when compared to other developed markets.

Interestingly, many industry leaders now welcome stronger ASIC oversight. Higher standards will level the playing field and protect both investors and borrowers.

APRA’s vigilance on property investor activity – now 41% of new finance – is another safeguard.

The outlook is bright; but could dim very quickly

Australia is not just riding a wave of global liquidity. It is earning its reputation as a premier private credit destination. Australia offers one of the most attractive risk/return profiles in private credit across developed markets. But investors must recognise the nuances. Secured opportunities are crowded. Niche segments carry higher risk but remain attractive relative to the US.

The next 12 months will deliver opportunities, but only for those disciplined enough to distinguish between crowded segments and untapped niches – and realistic enough to prepare for the possibility of a macro shock.

The property market is resilient, but repayment capacity is the true systemic risk. Unless we see a true black swan event or external shock that drives unemployment higher, both the property market and the debt underpinning it look secure for now.

APRA’s intervention may cool some of the heat in the property market, but given the significant undersupply, I expect property prices to remain relatively stable in the near term.

Strong employment and steady GDP growth mean households are still working and servicing their mortgages, keeping the majority of debt on solid footing.

For investors, the lesson is clear: don’t confuse scale with stability.

The US private credit market may be larger, but Australia’s is stronger.