Fixed-income investing in Australia has become more complex. For a long time, the approach was straightforward: buy corporate bonds, collect your coupons, and feel reasonably secure about your capital. But the interest rate cycle of 2022–2024, which saw the sharpest tightening in a generation, exposed the duration risk sitting within many bond portfolios and prompted a genuine rethink of fixed-income allocation.
Private credit has attracted serious attention as a result. It is not a new asset class, but it has moved meaningfully into the mainstream conversation for Australian advisers and wholesale investors over the past three years.
This article looks at private credit and corporate bonds, focusing on income, risk, liquidity, and which investors they suit. It is for readers who already know about fixed income and want a straightforward view of where private credit makes sense, and where it does not.
Understanding Corporate Bonds
A corporate bond is a type of debt instrument that a company issues to raise capital. When you act as an investor, you lend money to the company and, in return, receive regular coupon payments for a set period. Your principal is repaid at maturity, provided the company has not defaulted.
Bonds issued by companies may be listed or unlisted. When listed, they are traded on exchanges such as the ASX and thus offer daily liquidity and clear market pricing. Unlisted bonds are sold either directly to investors or through intermediaries, and liquidity must be agreed upon between the parties concerned.
The duration risk connected with corporate bonds is something that many investors fail to appreciate. Bond prices move in the opposite direction to interest rates: when rates rise, the market value of existing fixed-coupon bonds declines. The longer the period still left on the bond, the more sensitive its price is to changes in interest rates. The income from your coupon remains unchanged, but your capital value does not.
Duration risk is a real issue. In 2022, Australian investors with long-term investment-grade bonds saw large losses when the RBA raised the cash rate from 0.10% to 4.35% over 18 months.
What Is Private Credit?
Private credit is debt financing provided directly to borrowers, typically businesses, outside the public bond markets and without a bank intermediary. Specialist fund managers originate, underwrite, and manage these loans on behalf of investors.
The asset class spans a wide range of risk and return profiles:
- Senior secured direct lending to SMEs and mid-market companies, backed by real assets or receivables
- Asset-backed lending secured against property, equipment, or trade receivables
- Mezzanine and subordinated debt, sitting behind senior lenders in the capital structure and carrying higher risk in exchange for higher yield
- Trade finance and specialty lending
These are materially different risk propositions. Senior secured lending to an SME with tangible asset backing is not the same as mezzanine lending to a property developer. Investors evaluating private credit funds should understand where in the capital structure the fund lends, and what security sits behind each loan.
Not all private credit is equal. Senior secured, asset-backed lending to operating businesses is a fundamentally different risk profile to subordinated or unsecured lending. The term “private credit” covers both, and the difference matters enormously.
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Comparing Income Generation
Corporate bonds
Corporate bonds pay a fixed coupon set when they are issued. This predictability helps with cash flow planning, but if market rates go above your coupon, your bond loses value, even if the company is still financially healthy. You keep getting your coupon, but your investment is now worth less.
Private credit
Most Australian private credit funds grant loans at variable rates, the rate generally being set as a margin over the Bank Bill Swap Rate (BBSW). As interest rates rise, the income from the loan portfolio also increases. This variable-rate arrangement was a significant advantage for private credit investors during the 2022–2024 tightening cycle.
There is also a structural yield premium. Because private credit investors accept illiquidity, their capital is committed for a defined period and cannot be traded on an exchange; they are compensated with an illiquidity premium above what a public bond of equivalent credit quality would yield. This premium reflects the genuine constraint of not being able to exit at will, and it is one of the primary reasons institutional investors allocate to the asset class.
Risk Comparison
Credit risk
Both corporate bonds and private credit carry credit risk, meaning the borrower might default and fail to repay. For corporate bonds, this risk shows up in public credit ratings and daily bond prices. Private credit does not have public ratings, so the fund manager’s underwriting is the main protection. This makes choosing the right manager much more important in private credit than in investment-grade bond funds.
The security package is the structural offset in senior secured private credit; when a borrower fails to meet the repayment obligations of a senior secured private loan, the lender has priority rights over the borrower’s assets and, in historically comparable default situations, recovery rates on well-structured senior secured lending have been meaningfully higher than those on unsecured bonds.
Mark-to-market volatility
Corporate bond prices change every day in response to market sentiment, interest rate expectations, and shifts in credit spreads. In a risk-off environment, even high-quality corporate bonds rated investment grade can experience a sharp, pronounced price decline.
Private credit portfolios are not priced daily. Instead, their value is calculated monthly or quarterly by the manager or an independent valuer. This makes the portfolio appear more stable during market swings, but only because there is no daily pricing. The credit risk remains, and borrowers can default if the economy worsens; it just does not show up in daily price changes.
Capital structure and security
Many corporate bonds, particularly those issued by large investment-grade companies, are unsecured, meaning bondholders have no specific claim on assets in a default. Recovery depends on what remains in the estate after secured creditors are paid.
Senior secured private credit loans are structured with a specific security interest over the borrower’s assets: real property, plant and equipment, receivables, or business assets. In a default, the lender moves to enforce that security. The quality and liquidity of that security are key underwriting considerations and primary drivers of recovery outcomes.
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Liquidity and Accessibility
Corporate bonds
Corporate bonds listed on the ASX are usually bought and sold during market hours. Although liquidity varies by issuer and bond volume, investors can generally exit a position within one trading day for mainstream investment-grade issuers. This ease of access is a real benefit to investors who may need to rebalance their portfolios, generate cash, or act quickly in response to changing circumstances.
Private credit
Private credit requires investors to commit capital for defined periods. Redemption terms vary by fund structure; some funds offer quarterly liquidity windows with notice periods, others lock capital for the life of the fund. In either case, exit is not available on demand as with a listed bond.
The lack of liquidity is the specific compromise investors accept to obtain the yield premium; it represents a real limitation, not just a small footnote. Investors should commit money only to private credit funds they are certain they will not need to access under the fund’s liquidity terms.
Access is also more restricted. Most Australian private credit funds are available only to wholesale investors as defined under the Corporations Act — broadly, those with net assets exceeding $2.5 million, gross income above $250,000 per annum, or investing a minimum of $500,000 in a single transaction. Corporate bonds listed on the ASX are accessible to retail investors without these thresholds.
Comparison Summary
| Corporate Bonds | Private Credit | |
| Income type | Fixed coupon; rate set at issuance | Typically floating rate linked to BBSW; adjusts with market rates |
| Interest rate sensitivity | High; bond prices fall as rates rise (duration risk) | Low for floating-rate structures; income adjusts rather than price declining |
| Security / seniority | Often unsecured or subordinated; lower priority in a default | Senior secured structures have first claim on borrower assets; stronger recovery position |
| Mark-to-market volatility | Daily price movement driven by market sentiment and rate expectations | No daily mark-to-market; NAV updated periodically by manager or independent valuer |
| Liquidity | Listed bonds trade on ASX; generally liquid in normal market conditions | Capital committed for defined periods; redemption subject to notice periods or fund terms |
| Yield premium | Market-priced; yield reflects publicly available credit risk pricing | Illiquidity premium above public market equivalents; additional return for committing capital |
| Transparency | Public ratings, exchange filings, real-time pricing | Manager reporting and loan-level disclosure; no public exchange pricing |
| Investor access | Retail and wholesale investors via ASX or broker | Typically restricted to wholesale investors under the Corporations Act |
Which Structure Suits Which Investor?
Corporate bonds are suitable for investors who value liquidity, demand daily pricing transparency, and need the ability to exit their positions on short notice; they are suitable for retail investors, those with shorter investment horizons, and portfolios in which capital flexibility is important. The drawback, however, is the duration risk associated with fixed-rate instruments and the volatility of credit spreads during risk-off periods.
Private credit is suitable for wholesale investors who have a longer investment horizon and who are willing to commit capital in return for a yield premium, floating-rate income, and reduced mark-to-market volatility; however, before committing, such investors need to have confidence in the fund manager’s underwriting ability, be at ease with less frequent pricing, and have a clear understanding of the liquidity terms.
It is also important to be specific as to which kind of private credit is meant. Lending that is senior secured and based on assets to businesses which are carrying out their normal operations is a defensive allocation geared towards providing income. Lending which is mezzanine or subordinated, on the other hand, involves considerably greater risk and should not be used as a replacement for investment-grade bonds in a defensive portfolio.
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Combining Both in a Portfolio
The two options are not mutually exclusive. An increasing number of financial advisers in Australia are setting up fixed-income portfolios that include listed corporate bonds to provide liquidity and enable daily pricing together with a private credit component which is intended to improve yield and provide income stability.
In practice, this involves maintaining sufficient liquid fixed income to meet foreseeable cash flow requirements, while allocating a specific portion (to be determined based on the investor’s real liquidity comfort) to private credit to capture the illiquidity premium. The allocation to private credit functions as an income anchor, not as a source of liquidity.
The way to effectively combine the two is to start by being honest concerning your liquidity requirements. You should determine the amount of private credit allocation based on the capital that, under the terms of the fund, you do not need access to. After that, let the yield premium take effect over time.
Conclusion
Both corporate bonds and private credit are legitimate forms of fixed-income investment, but they have different roles to play in a portfolio and involve considerably different levels of risk. Since the interest rate cycle over the past few years, the comparison between the two has been more relevant than it has been in a generation, and an increasing number of Australian investors are now taking private credit seriously as part of a diversified income strategy.
The question isn’t concerned with determining which is better in a general sense; rather, it involves assessing issues of duration risk, illiquidity, the seniority of capital structure, and manager quality, and then making a deliberate choice about allocation taking into account your income requirements, investment horizon, and your status as a wholesale investor.
About Rixon Capital
Rixon Capital manages the Rixon Income Fund, an unlisted wholesale private credit fund focused only on senior secured, asset-backed lending to Australian SMEs. We do not run a corporate bond fund and do not see private credit as a direct replacement for liquid fixed income. We can help you understand where senior secured private credit fits with your current fixed-income investments and whether our approach matches your goals.
If you would like to understand how the Rixon Income Fund is structured, how we underwrite and monitor loans, and what role it might play in a broader fixed-income allocation, get in touch with the team.
