Private credit and bond funds are often placed in the same line of an asset allocation. Both lend money rather than take equity ownership, and both are commonly described as defensive. Returns are not composed the same way in each. A bond fund’s return can include capital gains or losses as well as coupon income, and a private credit fund’s return may include interest, fees and changes in the assessed value of its loans. The description also carries different weights in each case. Private credit can involve capital loss, borrower default, uncertainty in valuation, and restricted or delayed withdrawals. That grouping is understandable, and it obscures a set of structural differences that matter when an investor is comparing two products side by side.
The differences are not primarily about return. They sit in where the exposure comes from, how the assets are priced, how an investor gets their money back, who assesses the credit risk, and what the manager is paid. Australian regulators examined several of these questions during 2025. This article sets out the structural comparison and what ASIC and the RBA have said about it.
What Each One Actually Holds
A bond fund holds debt securities issued into public markets. Government, semi-government and corporate bonds are standardised instruments, issued to many investors at once, and can be bought and sold before maturity. Australian Government bonds trade on the ASX, while most corporate bonds trade over the counter.
Private credit is defined by ASIC as “non-bank lending that is not publicly traded or widely issued publicly.” Rather than buying a security someone else issued, a private credit fund may negotiate or originate loans directly with a borrower, or obtain exposure through underlying funds, special purpose vehicles, warehouse structures or other intermediaries. The RBA notes that private credit loans “are typically not traded in secondary markets or publicly rated, and lenders tend to hold private credit deals to maturity.” Borrowers are often businesses with irregular cashflows or limited collateral, which is part of why the loan is negotiated bilaterally.
The composition of the Australian market is distinctive. REP 814, prepared for ASIC, estimated the Australian private credit market at around $200 billion in 2024, drawing on industry estimates of $213 billion from EY and $205 billion from Alvarez & Marsal. Estimates vary considerably with scope. The RBA, measuring credit outstanding rather than assets under management, estimated the market at around $50 billion as at December 2025. The two figures count different things: capital committed to and managed by funds, against loans actually drawn. Within its estimate, REP 814 put real estate lending at 40 to 60 per cent, corporate and commercial lending at 20 to 40 per cent, and asset-backed or securitised lending at 10 to 30 per cent
How the Two are Priced
This is the difference investors tend to notice last and it may be the most consequential.
A bond fund’s holdings have observable market prices. Unit prices move as those prices move, and the market value of a bond is influenced by interest rate movements as well as by the issuer’s circumstances. The valuation is continuous and it is set by parties other than the manager.
Private credit loans have no secondary market price. Value has to be assessed rather than observed. The RBA has noted that private credit valuations “are typically less frequent and subjective.” ASIC’s September 2025 report found that “many funds do not undertake quarterly valuations, and some rely on internal processes without independent review,” and that internal valuations by deal teams create conflicts where fees depend on those same asset values. Its November 2025 surveillance of 28 funds found most did not separate the investment committee approving a loan from the people monitoring that loan’s value afterwards.
The practical point is that reported volatility in the two is not measured on the same basis. A bond fund reprices daily against the market. A private credit fund reprices on a valuation cycle, using a methodology the investor may or may not be able to inspect.
Interest Rate Exposure Works Differently
Many conventional bonds pay a fixed coupon set at issue, though bond funds can also hold floating rate notes, inflation-linked securities and other debt instruments. Where interest rates rise, bonds paying lower fixed coupons may become less attractive and their market value may fall. ASIC describes this as interest rate risk, being the risk that a change in interest rates could reduce the market value of the bond. It affects the fund’s unit price even where every issuer continues paying.
Private credit lending is more commonly variable rate, and the RBA describes private credit loans as generally senior secured and variable rate. Where a loan resets with the reference rate, the income may move with rates rather than the capital value moving against them. That reduces one form of exposure. It does not reduce credit risk, and a rising rate also increases the interest burden on the borrower.
Liquidity is Structured Differently
A bond fund’s ability to meet withdrawals rests on the tradability of what it holds. Where an investor redeems, securities can generally be sold.
Private credit funds do not have that option in the same form. ASIC’s observation is direct: “Liquidity in non-ASX-listed funds comes from capital supplied by new investors in the fund or the maturity and repayment of loans.” ASIC also noted that in property lending, loan maturity dates are sometimes treated as an opportunity to renegotiate rather than as repayment dates. The RBA notes that private credit funds commonly use closed-end structures restricting investor withdrawals in a given period.
ASIC’s surveillance found only two of the eight wholesale funds reviewed performed stress testing as part of liquidity risk management, and that disclosure of redemption terms, liquidity gates and stress testing was inconsistent. In one case, a wholesale fund continued to distribute its product while a substantial proportion of its loans were in default and investor redemptions had been frozen.
Who Assesses the Credit Risk
In a bond fund, credit assessment is distributed. Issuers are commonly rated by agencies, the manager forms its own view, and the market price provides a continuous third opinion that adjusts as circumstances change.
In private credit, the assessment sits with the manager. There is generally no public rating and no market price to test it against. ASIC found that fewer than half of the 28 funds reviewed had detailed written credit, impairment or default management policies in place. It also found reported default rates ranging from zero to 6 per cent, but that funds defined “default” differently and described loan security inconsistently, so the figures were not comparable across funds.
Concentration differs as well. Across the funds ASIC reviewed, wholesale funds held an average of 47 borrowers, compared with 3,274 for retail funds. Bond funds typically hold exposure across a large number of issuers.
Fees and Where the Manager’s Revenue Comes From
A bond fund manager is generally paid a management fee expressed as a percentage of assets, and the arrangement is visible in the offer document.
Private credit managers may earn from more than one place. ASIC found that some managers retain 50 to 100 per cent of upfront and default-related fees paid by borrowers, and that some use special purpose vehicles to lend at a higher rate than is passed on to investors, retaining the difference. Its conclusion was that “non-disclosed remuneration can be a multiple of up to three to five times the publicly disclosed fund management fees.”
The surveillance work put numbers to it. Only 4 of the 28 funds published the interest rates their borrowers were paying, and one wholesale fund retained an interest margin of 7.5 per cent. Disclosed management fees ranged from 0.38 to 6.00 per cent for retail funds and from zero to 2.89 per cent for wholesale funds, though those figures do not capture borrower-paid fees or retained margin. Set against a bond fund’s management fee, the two numbers may not describe the same thing.
The Disclosure Position for Wholesale Investors
Where a bond fund is offered to retail clients, it is generally a registered managed investment scheme with a Product Disclosure Statement and design and distribution obligations attached. Wholesale private credit funds sit outside much of that. ASIC noted that wholesale funds are subject to limited statutory disclosure requirements, with offers typically made under an Information Memorandum.
The assessment work a disclosure regime would otherwise carry therefore sits with the investor or their adviser. That trade-off attaches to wholesale classification generally, and it applies with more force where the underlying assets are not publicly priced.
Where the Regulators Have Landed
ASIC has indicated its 2026 work will focus on fees, margin structures and conflict-of-interest management in wholesale private credit funds, and on distribution to retail clients.
The RBA’s March 2026 Financial Stability Review noted that private credit has continued to grow strongly while remaining less than 2 per cent of assets in the Australian financial system, and that available data do not indicate a material erosion of lending standards at the aggregate level. ASIC has separately observed that limited visibility over activity in private markets restricts the ability of regulators to assess and respond to risks. Neither position is a statement about the merits of the asset class. Both are statements about information.
In Short
A bond fund holds tradeable securities that are priced by the market every day, commonly rated by agencies, generally fixed rate, spread across many issuers, and redeemable by selling the underlying. A private credit fund holds negotiated loans that are not traded or publicly rated, valued periodically by an assessment rather than a price, commonly variable rate, held in smaller numbers, and repaid through loan maturities or new investor capital.
Those are different exposures with different questions attached. For a bond fund, much of the enquiry concerns duration, credit quality and cost. For a private credit fund, ASIC’s work suggests it extends to who values the loans and how often, whether valuation is independent of the people who wrote the loan, how “default” is defined in the reporting, what the manager earns from the borrower beyond the management fee, and what happens to redemptions where loans are not repaid on time. ASIC’s findings indicate the answers vary considerably between managers, which is why the comparison is better made at the level of the individual fund than the category. Investors and advisers may wish to obtain advice specific to their circumstances.
Source:ASIC REP 814 Private credit in Australia (22 September 2025) · ASIC REP 820 Private credit surveillance report (5 November 2025) · RBA Bulletin, Growth in Global Private Credit (October 2024) · RBA Financial Stability Review (March 2026) · ASIC Moneysmart, Bonds
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