There is a split happening in private credit, and it is worth paying attention to. Not because of the headlines, but because of who is on each side of it.
In July 2026, the Australian Financial Review reported that AustralianSuper, the country's largest super fund with around $410 billion under management, plans to roughly double its private credit exposure to close to $20 billion within four years, and to keep building from there. Its head of fixed income put the long-term target at about 5% of assets, up from just over 1% today.
At the same time, retail investors in the United States pulled roughly $42 billion out of private credit funds in the first half of the year, and some of the largest managers in the world, including Apollo, BlackRock, Blue Owl and Oaktree, moved to limit redemptions.
So one group is running for the exits while the other is backing up the truck. Both are looking at the same asset class. Only one of them is right about their own situation, and it is worth understanding why.
"Private credit" is not one thing
The mistake driving the retail exodus is treating private credit as a single trade. It is not. The term covers a huge range of risk:
- •Unsecured corporate lending to a growth-stage software company
- •A mezzanine slice of a property development
- •A short-term first mortgage over a completed commercial building
These are wildly different risk profiles wearing the same label.
Most of the stress in the market right now is concentrated at one end of that spectrum. The pressure has been on corporate and direct lending, particularly funds exposed to software and AI-adjacent businesses, where earnings are hard to underwrite and valuations have run ahead of reality. When the economy softens and those valuations get questioned, investors head for the door.
The problem is compounded by structure. Many of the funds under pressure are open-ended and offer regular redemptions, while the loans they hold are long-dated and illiquid. That is a liquidity mismatch. When enough investors ask for their money back at once, the manager cannot sell the underlying loans fast enough to fund the withdrawals, so they gate. That is what happened offshore. It is a structural flaw, not a verdict on every loan in the book.
Institutions understand this. They do not read "private credit outflows" and conclude the whole asset class is broken. They ask a more precise question: what kind of private credit, secured by what, in what structure?
What the institutions are actually buying
AustralianSuper is not chasing yield for its own sake. The driver is demographic. A growing share of its members are approaching or entering retirement, and retirees need predictable income, not capital growth. The fund is repositioning years ahead of that wave because it needs durable income streams it can rely on through cycles.
That is a structural buy, not a tactical one. IFM and Aware Super made similar points in the same reporting. The demand is being driven by the ageing of the population and the shift from an accumulation system to an income one. That demand does not reverse when the news cycle turns. It builds for the next decade.
The institutions buying into private credit through this lens are gravitating toward the senior, secured, asset-backed end. That is the part of the market where the loan sits behind a registered claim over a real asset, and where the borrower's ability to repay is not the only thing standing between the investor and their capital.
Where first-mortgage property lending sits
A well-run first mortgage income fund lives on the defensive end of that spectrum, and the differences are concrete.
The security is a hard asset, and the claim is senior. The loan is secured by a registered first mortgage over Australian real property. If the borrower defaults, the fund is first in line to be repaid from the sale of the property, ahead of second mortgagees, unsecured creditors, and everyone else. Corporate direct lending has no equivalent. When an unsecured borrower fails, you are a line item in an insolvency.
The loans are short and self-liquidating. Terms are typically under twelve months, with a defined exit built in from the start, usually a refinance or a property sale. There is no long-dated asset to be trapped in. Each loan is designed to repay itself on a known timeline.
There is no redemption-run mechanic. In a contributory structure, where each investment sits in its own sub-trust holding a single loan, your capital is tied to that loan's defined maturity, not to a pooled fund that other investors can drain in a panic. The liquidity mismatch that gated the US funds does not exist in the same way, because the structure does not promise at-call liquidity against illiquid assets. Our guide to pooled mortgage funds covers where each structure helps and where it stops.
Where the risk actually sits
None of this makes first-mortgage lending riskless. Property values move. Borrowers default. A weak manager can underwrite badly, value security optimistically, or fail to enforce when it matters.
The regulator's concern is legitimate. ASIC has run a review flagging that some private credit valuations were not reflecting a deteriorating economy, and that concern applies most sharply to funds exposed to speculative development and construction, where a stalled project can compound into a serious loss.
The point is not that first-mortgage lending carries no risk. It is that the risk is different in kind from the risk driving the retail exodus, and it is largely knowable in advance if you look at the right things:
- •The ranking of the security
- •The basis of the valuation
- •The real loan-to-value ratio
- •The length and exit of the loan
- •The quality of the manager doing the underwriting
What the divergence is really telling you
The retail investor selling out of private credit and the institution buying in are not disagreeing about the facts. They are operating at different levels of resolution. Retail sees a category and a headline. Institutions see individual loans, security positions, and structures, and they can tell the difference between a stretched corporate loan book and a short-term first mortgage over a property at a 60% loan-to-value ratio.
The headline risk and the actual risk are not the same thing. Sophisticated capital prices the actual risk. That is the whole game, and it is why the smart money is stepping in exactly where the retail money is stepping out.
If you want to understand how to tell a well-run first-mortgage fund from a poorly run one, the next question is who is underwriting it, and whether their money is in the deal alongside yours. We cover that in How to Assess a Private Mortgage Fund Manager.
FAQs
Is private credit in trouble?
Parts of it are under pressure, particularly unsecured corporate and direct lending exposed to businesses whose earnings are hard to underwrite. That is a different asset from a short-term loan secured by a registered first mortgage over property. The label covers both, which is why category-level headlines are a poor guide to any individual fund.
Why did overseas funds have to gate redemptions?
Because they were open-ended and promised regular redemptions while holding long-dated, illiquid loans. When enough investors withdrew at once, the manager could not sell the underlying loans fast enough. That is a structural mismatch between the fund's liquidity promise and its assets, not necessarily a judgement on the loans themselves.
Why is AustralianSuper increasing private credit exposure?
The reported driver is demographic rather than tactical. A growing share of its members are approaching retirement and need predictable income rather than capital growth, so the fund is building durable income streams years ahead of that wave.
Does a contributory structure avoid the redemption problem?
It changes the mechanic. In a contributory structure each investment sits in its own sub-trust against a single loan with a defined maturity, so your capital is not pooled with other investors who can withdraw en masse. It does not make the investment liquid. Your capital is committed until that loan repays.
What should I look at instead of the headline return?
The ranking of the security, the basis and independence of the valuation, the real loan-to-value ratio against a current as-is value, the length and exit of the loan, and the track record of the manager underwriting it.
Invest with the SL Premium Income Fund
For wholesale and sophisticated investors, our private mortgage investment fund, the SL Premium Income Fund, lends at the senior, secured end of this market. You can read more about the first mortgage income that secures every loan, how the fund provides exposure to alternative real estate debt, or start with our guide to private mortgage funds in Australia.
This article references reporting by the Australian Financial Review, "AustralianSuper defies private credit fear, plans fivefold asset lift" (21 July 2026).
This article is general information only and does not constitute financial, tax, or legal advice, and does not take account of your objectives, financial situation, or needs. The SL Premium Income Fund is an unregistered managed investment scheme available only to wholesale and sophisticated investors within the meaning of the Corporations Act 2001, and is not suitable for retail clients. It is issued by SL Premium Income Fund Pty Limited (ACN 664 382 076, AFSL 549857) as trustee. Target returns are not guaranteed, past performance is not indicative of future returns, and investment carries risk including the possible loss of capital. Read the Information Memorandum in full and seek independent advice before investing.
