With global private credit markets dominating headlines, it’s imperative that investors cut through the noise and focus on differences that materially shape risk, liquidity, and returns across different markets.
The U.S. private credit market has entered 2026 in a pronounced downturn – especially publicly traded Business Development Companies (BDCs) which are U.S listed credit vehicles. The S&P BDC index is down ~23% over the past 12 months1 amid negative sentiment from recent headlines, heightened worries over redemptions and underwriting quality, and growing fears of AI‑driven disruption, especially given U.S. private credit’s heavy software exposure.
In the unlisted space, Blue Owl’s proposed merger of OBDC II into OBDC in late 2025, widely viewed as a liquidity‑management measure, was later abandoned, and by early 2026 the firm had shifted OBDC II from quarterly redemptions to return‑of‑capital distributions. The stress became more visible in March 2026 when Blackstone’s BCRED received record 7.9% redemption requests (around US$3.8 billion), which the manager met in full, including roughly US$400 million of sponsor capital, highlighting sector‑wide concerns around semi‑liquid, or unlisted vehicles. In March, HLEND (Blackrock), PIF (Morgan Stanley) and Apollo Debt Solutions (Apollo Global) capped redemptions at 5%.
Most Australian listed credit investment companies and trusts are currently trading below their NTAs, with a weighted average discount of 5.4%. Notably, the Metrics Real Estate Multi‑Strategy Fund trades at a 22% discount, while the Metrics Income Opportunities Trust sits close behind at 21.8%2. Overall, the Australian listed credit market is trading at historically high discounts, highlighting pronounced market dislocation.
Investors must consider whether these discounts and mass redemptions are a result of shifting sentiment or fundamental credit headwinds.
Key considerations for investors when navigating headlines
Interpreting the U.S. vs Australian Private Credit
Investors should be mindful that global private‑credit markets vary widely, and these differences must be understood before assuming that offshore headlines apply to their own exposure to Australian private credit. Recent U.S. headlines centre on BDCs and semi‑liquid vehicles facing elevated redemptions and scrutiny of software‑heavy corporate lending, where AI‑driven disruption may challenge cash flows.
By contrast, much of Australia’s private‑credit universe is anchored in secured, real‑asset‑backed lending, notably first‑lien residential/commercial real estate and asset‑backed facilities. These structural differences mean certain U.S. stress signals don’t automatically translate to domestic portfolios3.
Leverage at the fund level
Both listed and unlisted private‑credit funds can use leverage, often through revolving credit lines or issuance of unsecured notes. In addition, a fund’s assets may be internally leveraged via embedded credit derivatives, structural leverage within investment vehicles, or through subordination in the capital structure.
U.S BDCs typically employ structural leverage by issuing unsecured notes (frequently fixed rate), using this permanent debt financing to expand their investment capacity and enhance returns. A declining interest rate environment can squeeze BDC net income, reducing distributions available to investors as they typically lend on a floating-rate basis, financed by fixed-rate unsecured notes.
Listed Australian private‑credit vehicles typically avoid structural leverage (note issuance), but investors should be cognisant that some may still directly or indirectly draw on revolving debt facilities often through investment in sub-trusts that are leveraged, to manage liquidity, fund investments or meet working‑capital needs.
In both cases, investors should consider that borrowed capital sits ahead of equity in the funds’ capital structure and as a result debt providers will be paid before unit holders. Aquasia does not currently and has not historically employed leverage at the fund level for any products, including the Aquasia Private Investment Fund.
Different types of private credit access in Australia
Investors typically access Australian private credit in two ways: unlisted funds which are generally open-ended and closed‑ended ASX‑listed vehicles (LICs/LITs). Open‑ended unlisted funds price off net asset value (NAV) and generally offer periodic redemptions aligned to underlying loan liquidity, and have limited exposure to market-risk, but with less frequent access to cash.
Listed funds, by contrast, provide daily tradability, yet their market prices can deviate from NAV, trading at discounts or premiums as sentiment shifts. Understanding this structural difference, asset level liquidity versus market‑driven price liquidity, is essential for setting expectations around volatility, exit mechanics and return pathways.
Credit headwinds or market panic?
Private credit lacks continuous price discovery and the public market transparency of listed vehicles. When anxiety rises, investor panic can propagate across vehicles that are not fundamentally exposed to the highlighted problem (e.g. software credit or specific redemption dynamics), especially in listed funds/companies that can trade at material discounts to NAV during sentiment downdrafts.
A combination of sentiment and fundamentals has driven recent price moves and redemption waves in publicly offered private‑credit formats. For Australian investors, this underscores the value of looking through to collateral, leverage and governance, not headlines alone, when judging risk, returns and liquidity.
Summary
With negative commentary swirling around private credit, investors are best served by revisiting core principles: understanding how lending profiles differ across regions, recognising how leverage at the fund level subordinates unit holders to debt holders, distinguishing market‑priced listed vehicles from NAV‑priced unlisted funds, and assessing whether sensational headlines actually align with the true fundamentals of the specific portfolio they hold or are considering.
- S&P Global Ratings: S&P US BDC Index Data as of 09/03/2026 ↩︎
- Aquasia, Bloomberg; 16 March 2026 ↩︎
- Even domestically, investment mandates and portfolio construction approaches across private credit funds can vary significantly, reflecting differences in target returns, risk appetite, sector focus, borrower profile, security arrangements, and portfolio diversification strategies. As a result, performance outcomes, liquidity profiles and risk exposures may differ materially between funds. ↩︎
Disclaimer
This commentary is prepared by Aquasia Pty Ltd ABN 20 136 522 051, AFSL 337872 (Aquasia) for general information purposes and does not constitute financial or investment advice or recommendation or an offer to buy or sell any financial product. It does not take into consideration any person’s objectives, financial situation or needs and should not be used as the basis for any investment or financial decision. Past performance is not a reliable indicator of future performance.
