Opportunity through uncertainty
“We've been long term investors in private credit for 10 years now and I can't recall a time where a particular sector has had so much bad news out there. But the reality is if you look under the bonnet ...the actual underlying credit is still in very good shape. ...I think the proof is in the pudding. So despite all that noise, the returns are there."
Simon Duckett, Koda Capital
Zagga’s recent fireside panel brought together leading voices from private credit, capital markets, wealth advisory and property to examine the gap between market perception and investment reality – and why discipline, governance and manager selection matter most when sentiment turns.
At a time when private credit has attracted heightened scrutiny, Zagga’s recent panel discussion, Opportunity through uncertainty, provided a timely forum to separate noise from fundamentals. Hosted at MinterEllison’s Sydney office and moderated by Zagga Executive Director, Tom Cranfield, the discussion featured Daniel Jones, Head of Debt Capital Markets at FIIG Securities, Simon Duckett, Senior Advisor and Partner at Koda Capital, and Benni Aroni, Chair of the Mirrorstone Advisory Board.
The purpose of the session was not to dismiss current concerns, but to place them in context. The panel explored whether recent headlines reflect a broad deterioration in the sector or a more nuanced market cycle in which individual credit events, investor behaviour and liquidity expectations need to be assessed carefully.
A sector under scrutiny but not under structural threat
The discussion opened with the question most investors are asking:
Is fear creating market weakness, or is fear being amplified by selective headlines?
The panel broadly agreed that current challenges are real, but that they should not be extrapolated across the entire private credit sector.
Recent headlines have increased scrutiny on the asset class, but the panel argued that market sentiment and underlying credit performance are not always aligned.
Daniel Jones made a similar point, cautioning against treating private credit as a single, uniform asset class:
“Private credit is a very broad asset class that has multiple sectors and multiple segments within it. To say that private credit is singular, I think, is a massive misconception.”
Private credit is not one market, one structure or one risk profile
A recurring theme was the importance of distinguishing between different parts of the private credit market. Real estate-backed credit, corporate direct lending, special situations, distressed credit and sponsor-led private equity-backed transactions each carry different characteristics and risks. Within real estate credit itself, there are important distinctions between construction finance, residual stock, land subdivision, investment loans and stabilised assets.
The Australian market was also presented as structurally different from larger offshore markets. Simon Duckett highlighted several features that distinguish domestic private credit, including shorter loan tenures, stronger lender protections and generally lower levels of internal fund leverage than are commonly observed in the United States. These differences, the panel argued, are important when comparing Australian private credit with global examples.
For investors, the implication is clear: headline risk should not replace credit analysis. The relevant questions are not simply whether a loan sits within private credit, but who the borrower is, what security supports the loan, how the structure is documented, whether the valuation is defensible, how diversified the exposure is and whether the manager has demonstrated the discipline to avoid transactions that fall outside its risk settings.
Governance, alignment and the discipline to walk away
If there was one theme that united the panel, it was manager selection. Periods of market stress expose the difference between managers with robust governance, genuine alignment and through-cycle experience, and those whose processes have not been tested under pressure.
Simon Duckett reinforced the point:
“It comes back to manager selection being just so important… Like every sector, there’s always really good managers who’ve got really good experience that we feel really comfortable with.”
Daniel Jones was direct:
“Governance is the first thing on my checklist. Every time I assess a non-bank or a manager, governance is the first thing.”
He added that “a manager [should be] assessed on what they are willing to walk away from, not the deals that they can originate.”
That distinction is particularly relevant in a market where competition for capital and deals can tempt weaker participants to stretch on leverage, valuation or borrower quality. The panel pointed to practical warning signs: too many funding sources, feasibility assumptions that do not align with observable costs, excessive leverage, and transactions that appear to have circulated widely across the market without finding a disciplined home.
In Tom Cranfield’s words:
“If every man on the street’s seen a deal, well, there’s another red flag.”
For Zagga, the point is central to its investment philosophy: investing for risk first, not return first, and maintaining the conviction to decline transactions that do not meet the required standard.
Illiquidity is a feature, not a flaw
The panel also addressed a source of investor discomfort: liquidity. Private credit should not be treated as a cash substitute. Its return profile reflects, in part, the willingness to accept illiquidity or semi-liquidity, and the appropriate matching of an investor’s time horizon with the underlying assets.
“Unless you’ve got the ability to stay in the asset class for 12 months, you should be in fixed income.”
Simon Duckett, Koda Capital
Simon Duckett framed this in practical terms and also noted that, for long-term investors, redemption restrictions serve as a protective function by reducing the risk that higher-quality assets need to be sold quickly to satisfy short-term redemptions.
Tom Cranfield put the issue plainly: “Unfortunately, a lot of people who’ve invested haven’t understood that they’ve invested in a product that is illiquid to semi-liquid.” The panel’s broader point was that illiquidity is not inherently problematic when it is understood, disclosed and managed properly. In private credit, illiquidity can be a feature, not a flaw, provided it is aligned with the investor’s objectives and the manager’s mandate.
Australian fundamentals remain the anchor
Beyond private credit, the discussion considered the broader Australian property market and the structural drivers supporting demand. The panel explored housing undersupply, migration, planning delays, construction costs, and the role of private capital in delivering the property and infrastructure Australia needs.
Daniel Jones summarised the local context succinctly:
“Australia…is [its] own unique market, but it’s also a market that is underpinned by strong fundamentals.”
Benni Aroni also emphasised the long-term importance of property and finance to the Australian economy, while acknowledging that affordability, productivity and government policy settings remain material challenges.
The panel did not minimise those challenges. Construction costs, planning complexity, funding constraints and shifting sentiment all have consequences. However, the discussion returned repeatedly to the same central point: well-managed private credit, backed by disciplined underwriting and active asset management, can continue to play an important role in funding borrowers and projects that sit outside traditional bank appetite.
Institutional capital is looking past the noise
Another important insight was the divergence between retail sentiment and institutional behaviour. While negative headlines have made some investors more cautious, the panel observed that sophisticated capital continues to assess the sector on fundamentals.
"We are seeing money that looks at fundamentals, that is objective, that is rational, that’s clear-thinking and ignoring noise, only increase their exposure…where they’re seeing noise drive individuals out of markets.”
Tom Cranfield
Tom Cranfield pointed to examples of institutional and global capital increasing exposure to the sector.
Daniel Jones offered a similar conclusion: “Private credit has proven that it is an asset class that’s here to stay, and I think institutions will continue to increase their allocation.” This does not mean all managers or all strategies will perform equally. Rather, it reinforces the importance of experience, governance and disciplined capital allocation in this fast-growing asset class.
Key takeaways from the discussion
- Market noise has affected sentiment, but it should not be mistaken for uniform deterioration across private credit
- Private credit is not a homogeneous asset class; risk varies materially by sector, structure, borrower, security and manager
- Australian private credit has distinct structural characteristics, including shorter loan durations and generally lower internal fund leverage than larger offshore markets
- Governance, alignment, culture and the discipline to walk away are critical indicators of manager quality
- Liquidity expectations must match the nature of the underlying assets; illiquidity can be appropriate when properly understood and managed
- Institutional and professional capital continues to assess private credit through a fundamentals-led lens, even as headline-driven sentiment remains cautious
Conclusion: discipline matters most when conditions are difficult
The panel’s message was clear: scrutiny is warranted, but broad-brush pessimism is not. Current market conditions are testing the sector; they are not defining it.
For investors and advisers, the real question is not whether uncertainty exists, but which managers have the governance, alignment and discipline to manage through it.
In private credit, uncertainty does not remove opportunity.
It rewards discipline.
