Private credit, or non-bank lending, is a broad and often misunderstood category. As media scrutiny and regulatory attention continue to increase, it is becoming increasingly important to distinguish between the various segments of the market. The risk and return characteristics can differ significantly across lending strategies, making broad characterisations potentially misleading.
Just as bank lending covers a range of asset and borrower types, private credit also covers a range of assets and borrower types. Although private credit generally has a broader range and wider risk appetite, these two lending pools are driven by the same fundamentals: contractual payments of principal and interest, supported by security and lender protections.
Some of the main areas of private credit include the following:
Residential and Commercial private credit is a form of secured lending where loans are backed by real property, including owner‑occupied homes and investment properties (residential or commercial). Loans are typically backed by a registered mortgage and structured with conservative loan‑to‑value ratios.
From an investor’s perspective these risks are managed through careful borrower assessments, with independent property valuations and clear legal rights over the assets. Returns are generated through regular interest payments, providing a relatively stable income profile when loans are underwritten conservatively.
There are many non-bank lenders in this sector who are providing loans to borrowers who need speed, flexibility or tailored solutions that traditional banks don’t provide. Many private credit funds operate in this space.
Development lending assists with the construction or repositioning of property assets, including residential, commercial and mixed‑use projects. Because funding is provided before a project is completed, development loans often carry a higher level of complexity.
To manage this risk, lenders typically apply additional safeguards that may include lower starting loan‑to‑value ratios, pre‑sale requirements, detailed cost‑to‑complete analysis and regular monitoring of construction progress. Funds are often advanced in stages as milestones are gradually met. Many banks don’t operate in this sector due to the specialist skills required and complexity compared to lending against existing assets.
Development lending sits at the higher-risk, higher-return end of the private credit spectrum. Investors are compensated for taking on construction, execution and market risks, but success in this sector requires specialised expertise. Credit managers active in development finance typically have deep experience in property development, construction and project delivery, enabling them to navigate the complexities of underwriting and ongoing loan management.
Recent high-profile insolvencies in the hospitality and property development sectors have reinforced the importance of manager selection and disciplined underwriting. While these events have attracted significant media attention, they also highlight the material differences in skill, risk management and investment outcomes across the private credit market.
Corporate lending to operating businesses may occur without the security of property assets. Loans are secured against business assets such as a general security agreement over the business or more specifically receivables, inventory equipment, or supported by contractual cash flows and guarantees.
Risk assessment is centred on the borrower’s cash flow, balance sheet strength and business fundamentals. Loans are typically structured with covenants and reporting requirements, which give lenders early visibility if performance deteriorates.
Corporate private credit plays an important role in providing flexible funding solutions to businesses, particularly where bank appetite is limited or traditional lending criteria cannot be met.
Wentworth Williamson’s strategy operates in a different niche of the private credit market. Rather than investing in a single loan to a single borrower, we invest in pools of loans or receivables. This means that the non-performance of one or a number of loans is unlikely to impact our credit position, as our exposure is to a significant pool of loans which all perform independent of each other.
These loan receivables (including bridging loans, medical and equipment finance, livestock finance, credit insured trade invoices and auto rental payments) are assigned into a Special Purpose Vehicle (SPV), often referred to as a warehouse. Each non-bank lender we partner with has their own SPV, so assets are not commingled.
The SPV owns the receivables and is legally separate from the originating business to ensure investor capital is primarily exposed to the performance of the receivables rather than the underlying originator’s performance.
Why We Prefer Bankruptcy-Remote Warehouse Structures?
Warehouse structures provide significant protections to investors. These protections include:
In addition to these structural protections, we focus on two key areas: the quality of the underlying loans and borrowers, and the quality of the non-bank lender. While strong structures are important, successful outcomes also depend on disciplined underwriting, effective servicing and experienced management. For this reason, we assess both the assets being funded and the lender responsible for originating and managing them.
The combination of these features supports a disciplined, income‑focused approach to private credit that prioritises capital preservation.
Understanding the capital structure
Warehouse facilities are often structured with senior, mezzanine and seller note tranches, each with a different level of risk and return. Senior investors rank first in the payment waterfall, mezzanine investors sit behind them, while the seller note is typically funded by the non-bank lender and absorbs losses first.
For mezzanine investors, the seller note provides an important layer of protection, as losses are generally absorbed by the seller note before impacting the mezzanine tranche. This helps align the lender's interests with investors, as the lender retains a meaningful financial exposure to the performance of the loans it originates.
A specialist approach to private credit
Asset-backed lending is the niche within private credit that Wentworth Williamson has chosen to focus on. We believe that by applying a disciplined, risk‑focused approach with an emphasis on structure, transparency and capital protection, we can provide our investors with risk-adjusted returns which compare favourably relative to other private credit funding opportunities.
The Fund's objective is to earn long term returns superior to that of our competitors with less-than-average risk of loss. (For Wholesale Investors Only)
The Fund seeks to generate consistent monthly income for wholesale investors by investing primarily into unlisted credit securities that have the potential of generating income over the long term. (For Wholesale Investors Only)
Disclaimer: This article is prepared by Martin Marais. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.
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