Returns today, risk tomorrow. The next shakeout will show who got lending right

**Chris Conway** (0:05)
Hello, and welcome to The Rules of Investing, a podcast that gets inside the minds of leading investors, economists, and industry experts, and is brought to you by Livewire Markets. My name is Chris Conway, and today we're stepping into the world of private credit, where returns can be robust, but investors, like in any asset class, need to be aware of the risks. My guest is Ryan Donnar, managing partner and investment committee member at Privity Credit. Since 2013, Privity has launched four funds. The first three funds were predominantly for institutional investors. But in 2021, Privity opened up to wholesale investors looking for a private credit fund that offers diversification across the Australian and New Zealand corporate direct lending market. Ryan, welcome to The Rules of Investing.

**Ryan Donnar** (0:46)
Good day, Chris. Thanks for having us.

**Chris Conway** (0:48)
Let's dive right in at the top, Ryan. What are two or three of the most important themes that are shaping private credit into 2026? There's a lot going on. Why do they matter for investors?

**Ryan Donnar** (0:59)
Look, I think private credit is very topical. You're certainly seeing a bit of it in the press. Throughout 2025 and into 2026 From our perspective, I guess, what we call out as number one, I think there's, you're seeing an evolution here in Australia with the knowledge gap and the knowledge learning of investors. And understanding that private credit is not just one asset class. So it's important for investors to understand what they're actually invested in, what the underlying risk is and the distinction between the various offerings and opportunities within private credit.
For instance, there's, you could start with corporate lending. And just within corporate lending, that can be across SMEs, mid-market where Privity focuses, and then the large end of town, large cap. And also within that, there's different security. Being senior, the most secured position against the prime assets. People can be second-lean, so they're sitting down, still assets, but behind something else. Or there's mezzanine, which may be further away and slightly riskier from the actual underlying assets and cash flow. There's also asset back lending, which is in the early stage is something that we do at Privity. And there's everything that's well known in Australia, obviously real estate, development, finance, that accounts for basically 50% of exposures in Australia. It's well-cated for, and it's the reason that we don't go there and offer. And then there's stuff like special sits or other real assets, like infrastructure and so forth. So, yeah, private credit is quite a dynamic space. There's a lot of sub-segments. And so I think it's important that investors know what they're invested in and who they've got managing that exposure, and do they have the experience there. So structure and security probably matters more than the labels, as does the experience with the manager. I'd call out for number two as really just the increasing investment from the market into private markets. And we see that continuing to grow in 26 for Privity Credit in particular. This is really just following trends that have taken place overseas. We're many, many years behind in terms of penetration for offshore markets. Offshore markets, you know, Privity Credit accounts for 70 to 80% of lending here in Australia. It's kind of that 15 to 20%, you see different things mentioned. We do see that means there'll be, you know, with reasonable inflows. So for instance, in the mid-market of they're talking overall, so overall credit, looking at that growing around 20% per annum, about 30% in the mid-market. What that means for investors, obviously it can mean that there's more capital coming in, which is more capital-tracing deals. So you need to be aware of structural pressures coming into the market, pricing pressures. The important thing from our perspective for investors is just making sure who's controlling the lend, who's there structuring the deals, making sure they've got the experience and can deal with things as and when they evolve as they always do with in lending. Ownership of the origination, I think is also important for investors to be aware of. So that all comes with things growing. I think ultimately the big thing for investors, as we're seeing this asset class increase, I think it's important asset class for investors because of the yields that it provides and the capital preservation component. It's really making sure they've got the right experience managers who can deal with whatever situations arise.

**Chris Conway** (4:21)
Ryan, just a follow-up question there on that education point that you talked about and the big bucket that is private credit and the multitude of options that you just talked through. Just let's shake the conversation or frame the conversation a little bit. In your experience, what does private credit look like at its best when done really well? Then what's the other end of the spectrum? Don't name any names or anything like that, but what is private credit? Just so that a new investor to private credit understands, this is peak private credit or the best way it can be done, and this is really where you want to stay away from.