Key Takeaways
- • Patrick William, writing on Livewire Markets, argues that private credit losses should be分解 into three distinct risk sources: systemic risk (the "weather"), credit risk (the "aircraft"), and manager risk (the "pilot"), rather than being attributed to the asset class as a whole.
- • The author cites an RBA cash rate that rose four times in 2026 to 4.60%, with underlying inflation still above target, as part of a systemic environment that has pressured property and construction lenders most acutely.
- • Over the 12 months to mid-October 2026, the S&P/ASX 200 fell c2% before dividends, while many private credit strategies continued to deliver returns above inflation, according to the author.
- • Bathla is presented as a case study in systemic pressure becoming a credit event, with lenders to the same developer reportedly facing different recovery outcomes depending on capital structure position, security quality and pricing.
- • The author contends that manager risk is the only category fully within a fund manager's control and that a storm does not excuse poor decisions such as taking off in an "overloaded aircraft".
Summary
Patrick William, in a Livewire Markets commentary, argues that losses in private credit should be analysed by source rather than attributed to the asset class as a whole. He divides losses into three categories: systemic risk, which he calls the weather and which is set by monetary and fiscal policy and the broader economy; credit risk, the borrower behind the loan; and manager risk, the decisions made by the fund manager, which he describes as the only category fully within the manager's control.
On systemic risk, the author cites the RBA cash rate rising four times in 2026 to 4.60% with underlying inflation still above target, and Budget proposals to replace the 50% capital gains tax discount with indexation and a 30% minimum tax, and to restrict negative gearing on established homes. He notes that construction lenders have felt these pressures most acutely. He also points out that over the 12 months to mid-October 2026 the S&P/ASX 200 fell by about 2% before dividends, while many private credit strategies continued to deliver returns above inflation.
On credit risk, William cites ASIC Commissioner Simone Constant's September speech stating that private credit "will never be risk-free." He uses developer Bathla as a case study, describing how higher rates, softer buyer confidence and rising costs strained the developer. Media reports and industry intelligence, as characterised by the author, suggest first mortgage lenders to the same developer face divergent outcomes, with some expecting full capital recovery and others facing varying degrees of loss, depending on capital structure position, security quality and pricing. Fraud is treated separately as a risk that can arise in any environment and is more prevalent in corporate lending.
On manager risk, the author argues that a storm does not excuse poor decisions, and that regulation and investor due diligence matter most in this category. He concludes that investors should ask whether a loss was caused by the weather, the aircraft or the pilot, and that defaults are inherent to credit investing. The author states that Australian private credit continues to offer a compelling proposition for investors.
On systemic risk, the author cites the RBA cash rate rising four times in 2026 to 4.60% with underlying inflation still above target, and Budget proposals to replace the 50% capital gains tax discount with indexation and a 30% minimum tax, and to restrict negative gearing on established homes. He notes that construction lenders have felt these pressures most acutely. He also points out that over the 12 months to mid-October 2026 the S&P/ASX 200 fell by about 2% before dividends, while many private credit strategies continued to deliver returns above inflation.
On credit risk, William cites ASIC Commissioner Simone Constant's September speech stating that private credit "will never be risk-free." He uses developer Bathla as a case study, describing how higher rates, softer buyer confidence and rising costs strained the developer. Media reports and industry intelligence, as characterised by the author, suggest first mortgage lenders to the same developer face divergent outcomes, with some expecting full capital recovery and others facing varying degrees of loss, depending on capital structure position, security quality and pricing. Fraud is treated separately as a risk that can arise in any environment and is more prevalent in corporate lending.
On manager risk, the author argues that a storm does not excuse poor decisions, and that regulation and investor due diligence matter most in this category. He concludes that investors should ask whether a loss was caused by the weather, the aircraft or the pilot, and that defaults are inherent to credit investing. The author states that Australian private credit continues to offer a compelling proposition for investors.
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