Over the past decade, private credit has become an important component of many asset owner portfolios, but a perception of the asset class as risky – or, in isolated cases, fraudulent – means it is still treated with suspicion by some commentators and investors.  
 
For Damian Graham, chief investment officer at Challenger and former CIO at Aware Super, part of the problem for what he thinks is an otherwise sound asset class is the rapid growth in both the market and investor interest.   
 
“It’s grown so quickly, and brought a lot of new money in there, and I think that can drive some variable outcomes and can drive some variable quality of providers,” Graham told the Investment Magazine Fiduciary Investors Symposium.  
 
“It’s not a large market in the scheme of things, and we’re not too concerned about it – it’s one we know pretty well. But if there was a little bit more disruption in that market, a little bit of a shakeout, whilst that would be short-term pain I think that could be a long-term gain because you want to have credible providers and be able to price risk well.”  
 
John Laver, general manager of investments at Generation Life, pointed to a marketing playbook where investors are promised both capital stability and high returns – promises, that to many experienced practitioners, can seem at odds with each other, and which create a feeling that some sections of the asset class are “too good to be true”. 
 
“At the end of the day it’s just an asset class that bears a reasonable amount of risk that you’re hopefully getting compensated for,” Laver said.  
 
“Every asset class needs some stress to get rid of some of the players and practices. It’s a proper cycle, and it’ll come out the back of it with more defined characteristics, more segments, more clarity around what are some of the drivers of risk in the different parts of that market. I think it’s probably good for the asset class to go through this sort of pain.”  
 
Still, the institutional market is mostly free of the questionable practices that have worked their way into the wholesale space, according to Michael Weaver, general manager mid-risk assets and UK at Australian Retirement Trust.  
 
“We have more of a US lens on it, and institutional capital and partners that we’ve worked with for 10-plus years, and in many cases that is very different to what you see in some parts of the Australian market,” Weaver said.  
 
“When people in Australia talk about private credit they’re often talking about a fund that’s run by two or three people, doing mezzanine lending into real estate development, with no earnings or cash flow at all. 
 
“And so you can get all sorts of different investments that are labelled private credit, and that’s why it can mean 10 different things to 10 different people. In Australia, there is nowhere near as much institutional capital investing alongside what we would define as the broader market. Hopefully that will come, but it’s still a pretty well-banked market.”  
 
For Osvaldo Ocasta, head of fixed interest assets at MLC, stress in private credit is showing up in a very small part of a relatively small market – but he thinks it’s “incumbent” upon managers to keep doing educational work.  
 
“The business development company market is about $277 billion – that market is a very small part of the overall $3 trillion or so market. You have to put that into context,” Ocasta said. 

“One of the things we could do better is that education piece. It’s really important. This is an asset class that’s here to stay, and it should be treated as no different than the way you normally treat credit and build portfolios. It’s reaching that mature stage.”