In broad terms, private credit is when a business borrows from a private investment firm instead of a bank or by issuing public bonds. The sector runs along similar lines to private equity, and generally takes the form of a unit trust or a partnership, and is aimed at the wholesale end of the market.
Unlike listed bonds or bank lending, much of the information about borrowers, loan performance and valuations remains private. Supporters say that allows lenders to work more closely with borrowers, while critics argue it can make risk harder for investors and regulators to assess.
Massey University accountancy and finance dean Dr Claire Matthews says private credit can help fill a funding gap for smaller businesses that may struggle to access bank lending, but investors need to understand the risks.
“There is a place for these entities, but it really comes down to making sure that they are getting appropriate security to cover the lending that they’re doing, and assessing those loans well.”
In response to questions from the Herald, the Reserve Bank of New Zealand (RBNZ) said it engages with the local private credit firms.
“While there is limited data available on the scale of private credit activity in New Zealand, we engage with private credit firms and other financial sector participants through our regular liaison programme to monitor developments in the sector as part of our system monitoring role,” a bank spokesperson said.
Despite rapid growth, New Zealand’s private credit market remains a fraction of the size of those in Australia (A$200-250b), Europe and the United States (US$1.4 trillion/$2.49t).
One of the largest local players is Paul Carman’s Private Capital Group, which manages about $750 million and argues the domestic market differs markedly from overseas jurisdictions that have experienced problems.
Paul Carman, managing partner at Private Capital Group.
“Ostensibly, in our mind’s eye, [private credit] becomes misunderstood, and I think it is still broadly misunderstood in most jurisdictions, even though markets like the UK, the US and Europe are so mature,” he says.
Unlike many advanced economies, banks still provide the vast majority of lending to households and businesses in New Zealand.
Carman says PCG was set up in 2019 on the back of the Reserve Bank’s capital review, which called for banks to stump up more capital relative to their risk.
Private credit tends to be longer duration, and providers have greater ability to tailor their deals to meet the profile of the business that is borrowing, he says.
The high number of small to medium-sized businesses in New Zealand meant the financing of those businesses was often too small for the big, established offshore private credit players, he says.
PCG employs a unit trust structure, which provides “a high degree of rigour and contractual obligation within the fund to do things in a certain way to protect investors.
“The more diversified you are, the more insulation the fund has.”
Private versus public
“If you look at things from a public view, there is a limitation as to how much info you can get hold of,” Carman says.
“With private credit markets, borrowers can show warts and all.
“You can have an intimate discussion with these companies to ensure the structures are appropriate, so we tend to lend to these companies on a longer-term basis – five, six or seven years or longer.”
He says private credit has an advantage over banks in one key way – it is not subject to capital review requirements.
“Why? Because we don’t take retail deposits because our money is wholesale and we deal with institutions and the like, so we don’t have that requirement.”
Carman says people often confuse private credit with second-tier lending.
“What we are not doing is trying to find the credit that the banks don’t like and fill that gap – that’s not what this is.”
PCG is involved in lending to infrastructre.
Other key players in the local scene include Aotea Asset Management, which claims to be the first domestically owned and operated private credit manager in New Zealand.
Hunter Private Credit, managed by Harbour Asset Management; Pioneer Capital, which is also involved in private equity; and Peninsula Credit, owned mostly by New Zealand billionaire Berridge Spencer and Spencer family interests, are also increasingly active.
The Active Investor boost
Simon Pannett, portfolio manager and senior credit analyst at Harbour Asset Management, said AIP had been “transformational” for the sector.
He said a “significant” amount of funds were flowing into private credit as a result of AIP.
“It [private credit] is more conservative than the other investment options, and it has a liquidity time frame that is more aligned with visa requirements – people who are required to be invested for three years,” Pannett says.
“If you chose venture capital or infrastructure, those timelines are generally longer than private credit.”
Pannett noted AIP rules explicitly prohibit property lending.
“And what we are seeing in Australia [with Bathla] at the moment stems from property and construction lending, which has a more pronounced cycle and difficult liquidity requirements,” he says.
A survey by East and Partners of the top 100 revenue-ranked Australian corporates showed private credit had ticked up slowly and now represents about 7% or 8% of their total borrowings.
Martin Smith, head of markets analysis at the Sydney-based banking consultants, said the relationship between the banks and private credit differs between Australia and New Zealand.
“I’ve seen the term ‘frenemies’ used with private credit and the banks in Australia, whereas in New Zealand it’s a lot more autonomous – there isn’t as much of a tie-up.”
PCG’s Carman sees a big future for private credit in New Zealand, where banks occupy about 95% of the market compared with 25% to 40% in the US and Britain.
“There is a huge amount of additional penetration to achieve with private credit, and we want to be central to that on the business lending side.
“On the infrastructure side, there is just a huge amount of catch-up spending that is required, and we are keen to lend into that.”
He says the private credit operators who get into trouble offshore tend to be overly concentrated in certain areas.
Carman says AIP has been critical in enabling PCG’s funds to scale and has created an environment for new domestic players to emerge.
“AIP has brought long-term and sophisticated investors into our funds, many of whom are alternative market professionals themselves or highly experienced private credit investors in offshore markets.”
In terms of who PCG lends to, Carman says the firm is “relatively agnostic” although it does not lend to residential or commercial property sectors, retail “or anything behind the farm gate”.
PCG’s investors tend to be high-net-worth individuals, iwi, KiwiSaver schemes, and wealth management firms.
Its funds target a net return of the Official Cash Rate (2.75%) plus 4%.
PCG has two funds – the first is aimed at small to medium-sized businesses and the second at infrastructure-related businesses.
“The more diversified you are, the more insulation the fund has for any given degree of underperformance of an asset.”
A typical PCG borrower would be a family-owned, 10-15-year-old business with good cash flow, he says.
What the regulators say
The European Central Bank (ECB) noted in May that since 2025, defaults linked to private credit markets – including First Brands and Tricolor – illustrated how weak underwriting standards and opacity can transmit losses across parts of the financial industry.
The ECB, in a report, also noted the substantial exposure of private credit to the software sector.
“This is because substantial improvements in the capabilities of AI models have triggered concerns that the technology could disrupt the business models of some software firms,” the ECB said.
Across the Tasman, Asic’s Sarah Court said last month that there have been several troubling developments in the private credit sector, most notably with the collapse of Bathla.
“Asic has been calling out what we see as some of the risks associated with private credit for some time,” Court said.
In a report last year, Asic estimated the Aussie private sector credit sector to be worth around A$200b ($249b), about half of it in real estate-related assets.
“This exposure is characterised by significant investment in higher-risk real estate construction and development and, concerningly, involves a concentration of less experienced investors,” Asic said.
Private credit remains a small part of New Zealand’s financial system. But with billions of dollars of AIP capital flowing into the country, bank lending standards remaining tight and demand for alternative investments growing, the sector appears set for further expansion.
“New Zealand banks generally have limited exposure, and where they do lend, it is usually to businesses that are backed by private credit firms rather than directly to the private credit funds themselves,” a Reserve Bank spokesperson said.
“This means the links between banks and private credit are more transparent than in some other countries, making it easier to monitor the vulnerability of the banking system to private credit,” the spokesperson said.
“In the event that pressures on the financial system from private credit increase, we would enhance our monitoring of the private credit industry and its connections to entities regulated by the Reserve Bank.”
The Reserve Bank’s last managed funds survey showed that New Zealand fund managers – including KiwiSaver providers, life insurers, and other superannuation funds – held only a small share of their portfolios in private credit and private equity assets.
AIP retention
Sharad Nair, founder and board member of SFS Private Wealth and himself an AIP visa holder, said New Zealand’s strategy needed to shift from attraction to retention.
Almost $5b has already been committed or is progressing through the AIP programme. Immigration New Zealand figures show $2.72b in capital had been committed and transferred by September 2, with a further $2.215b in the pipeline.
Growth-category applicants must invest at least $5m for three years, while Balanced applicants must invest at least $10m for five years.
The revised settings came into effect in April 2025, meaning the first Growth-category investment periods can begin expiring from 2028.
Nair says the challenge is to turn the initial AIP investment into a broader financial relationship with New Zealand.
“The fact is, when due diligence is being done on these individuals, Immigration New Zealand knows what their wealth looks like and knows that only a small piece of it is coming in,” he says. “From there on, you need to build platforms for them to interact with the opportunity.”
Managing risk
Dr Claire Matthews is head of school and dean of the School of Accountancy, Economics and Finance at Massey University.
Massey University’s Matthews says private credit potentially offers better margins and gives investors another place to put their money.
“I’d be concerned from an investor’s perspective if that was the only form of investment that they had because that goes against the whole diversification issue.”
As with any form of lending, it came down to the security taken out and margins applied.
“They should be managing it so that when a client/borrower does get into difficulties, that’s not going to send them to the wall as the lender.
“It does come down to exactly how they’re operating.
“It’s not something inherent in the model – it’s just ensuring that they do have the skills and the systems to ensure that what they’re doing is appropriate.”
Matthews said private credit could potentially offer small to medium-sized businesses more borrowing options.
“There have been concerns about the fact that for many small and medium-sized enterprises they can actually struggle to get lending from the banks and that there aren’t alternatives really available to them,” she said.
While the banks dominate the home lending and corporate markets, Matthews said there was anecdotal evidence that they were not quite so attracted to the small to medium-sized end of the market.
“If private credit companies are coming along to help service that, then that’s got to be a good thing.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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