Tighter banking regulations in 2026 have pushed corporate borrowing further

⚠️ Not Financial Advice
These are the personal views and research of the Nomad Investor. Nothing published here constitutes financial advice. Always consult a licensed financial adviser before making investment decisions.

Private credit has emerged as a transformative force in the financial markets, particularly in the wake of tighter banking regulations implemented in 2026. With traditional banks retreating from risk-heavy lending due to regulatory constraints, private credit funds have stepped in to fill the void. For Australian and global investors alike, this shift represents a seismic change in how corporate growth and infrastructure projects are financed. The focus on “Significant Risk Transfers” (SRTs) marks a new era where private funds assume risks that banks once held, offering higher yields but requiring a nuanced understanding of the underlying risks.

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What’s Happening

The financial landscape has undergone a dramatic shift since 2026, shaped by stricter capital adequacy ratios and stress-testing protocols imposed on banks by global regulators. These changes have constrained banks’ ability to lend, especially for mid-market corporate borrowers and high-risk infrastructure projects. The result? Private credit has ballooned into a multi-trillion dollar asset class, far from its origins as a niche alternative investment.

Data from Preqin shows that private credit assets under management (AUM) globally reached USD 1.71 trillion by the end of 2025, up from USD 1.2 trillion in 2020. In Australia, private credit is increasingly integral to financing sectors like renewable energy, commercial real estate, and mid-sized corporate expansions. The ASX-listed private equity giant Pacific Equity Partners has even launched specialised funds to capitalise on this growing demand.

Significant Risk Transfers (SRTs) are at the heart of this trend. Banks offload portions of their loan books to private credit funds, effectively outsourcing the risk while maintaining client relationships. For investors, this creates opportunities for higher returns in exchange for assuming the role of shadow lenders in an increasingly complex financial ecosystem.

The Data Behind the Story

The numbers paint a compelling picture of private credit’s rapid ascent. Consider the following:

Global private credit AUM grew at a compound annual growth rate (CAGR) of 13.4% between 2015 and 2025, according to McKinsey.
Private credit funds accounted for 25% of corporate borrowing in the United States by 2025, up from just 8% in 2010, based on PitchBook data.
In Australia, private lenders funded over AUD 6 billion in new mid-market corporate loans in 2025, a 40% increase year-on-year, according to KPMG.

Globally, private credit AUM is projected to exceed USD 2.2 trillion by 2028, driven by demand for non-bank lending solutions.

At the core of this expansion is the appeal of higher yields. Private credit funds often offer returns in the range of 7–12%, depending on the risk profile, compared to sub-5% yields on investment-grade bonds. In a world of persistently low interest rates, this has been a game-changer for institutional investors such as superannuation funds in Australia, which are increasingly allocating to private credit to meet their return targets.

Year	Global Private Credit AUM (USD Trillions)	YoY Growth
2020	1.2	10.9%
2025	1.71	13.4%
2028 (Projected)	2.2	9.2%

What This Means for Investors

For investors, the rise of private credit offers both opportunities and challenges. On the one hand, the asset class provides access to higher yields, enhanced portfolio diversification, and exposure to sectors that are often underrepresented in public markets. On the other hand, it demands a willingness to embrace illiquidity and a deeper understanding of credit risk.

Australian superannuation funds, for example, have been increasing their allocations to private credit to achieve higher income streams and match long-term liabilities. Retail investors, too, are gaining access through listed investment trusts (LITs) and private credit ETFs, which are now available on the ASX.

Opportunity: Private credit funds specialising in renewable energy and infrastructure projects are set to benefit from Australia’s energy transition goals.

Strategically, private credit can act as a defensive allocation during times of equity market volatility, given its lower correlation to public markets. However, investors must also weigh the risks associated with rising interest rates and economic slowdowns, which could impact borrower solvency.

Key Risks to Watch

While private credit offers significant appeal, it is not without its risks. Here are the key considerations:

Credit Quality: As private credit funds target higher-yielding deals, the risk of defaults in a downturn increases.
Illiquidity: Investments in private credit are often locked up for 5–10 years, limiting flexibility.
Rising Rates: Higher interest rates can strain borrowers, particularly in leveraged sectors.
Regulatory Scrutiny: Increased oversight of private credit funds could lead to tighter restrictions and reduced profitability.

Warning: A sharp economic slowdown could trigger higher default rates in private credit portfolios, eroding returns.

Nomad Investor Takeaways

Private credit is no longer niche; it’s a mainstream asset class with global AUM projected to exceed USD 2.2 trillion by 2028.
Australian investors can access private credit through ASX-listed funds, providing exposure to high-yield opportunities.
Focus on funds specialising in infrastructure and renewable energy, as these sectors benefit from structural tailwinds.
Be mindful of illiquidity risks and ensure private credit allocations align with your investment time horizon.
Monitor credit quality carefully, particularly in higher-risk sectors like real estate and leveraged buyouts.
Consider private credit as a defensive allocation, but stay vigilant about rising interest rates and potential borrower solvency issues.
Diversify across geographies and sectors to mitigate concentrated risks within private credit portfolios.