Private credit has developed real momentum over the last few years. Institutional investors were the first to notice, followed by financial advisers, and now retail investors are asking about it as well. A relatively accessible way to gain exposure in Australia is through a private credit Listed Investment Trust (LIT), a form of investment that trades on the ASX but focuses on private debt markets that the average person would otherwise never have direct access to.
The appeal is real. But so is the complexity. And there’s one concept in particular that investors tend to overlook: the discount to NTA, which deserves considerably more attention than it usually gets.
What Is a Private Credit LIT?
A Listed Investment Trust is a closed-ended fund structure that trades on a stock exchange. Unlike an unlisted managed fund, where you buy and redeem units directly at the fund’s net asset value (NAV), a LIT has a fixed pool of capital. Units trade on the market, meaning the price is set by buyers and sellers, not by the fund manager.
Private credit LITs apply that structure to private lending. The underlying portfolio typically holds privately negotiated loans, things like senior secured loans to mid-market businesses, asset-backed lending, and real asset finance. Not publicly traded bonds. Private credit.
The practical difference from an unlisted managed fund? Liquidity is exchange-driven, not redemption-driven. That sounds like a small distinction. It isn’t.
Why Investors Use Private Credit LITs
The main attraction is the income it provides. Since private loans generally offer higher yields than listed fixed income, this extra return is passed on to investors through distributions. For portfolios focused on income, such as those of retirees, SMSF trustees, and investors tired of the rates available on cash and term deposits, this is significant.
There’s also a diversification argument. Private credit behaves differently from equities and government bonds. Its returns don’t move in lockstep with the share market as listed fixed income often does.
The illiquidity premium associated with unlisted private credit funds compensates investors for tying up their capital over the medium- to long-term. This premium represents a real advantage in terms of return; investors who do not require daily access to their funds are rewarded for agreeing to that restriction. This is one of the reasons why unlisted funds have in the past provided better risk-adjusted returns than their listed counterparts within the same asset class.
For investors who don’t qualify as wholesale investors under the Corporations Act, or who prefer the simplicity of an ASX-listed structure, private credit LITs offer genuine access to an asset class that was previously out of reach.
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Understanding the Discount to NTA
Here’s where it gets interesting, and where investors often get caught off guard.
Because LIT units trade on the market, the unit price doesn’t always equal the portfolio’s underlying net tangible asset (NTA) value. Sometimes it trades at a premium. More often, particularly in private credit, it trades at a discount. That gap between market price and NTA is the discount to NTA.
It can sound like a technical footnote. But if you buy a LIT trading at a 15% discount to NTA, you’re acquiring assets for less than their reported book value. Whether that discount narrows or widens after you buy is another matter entirely, and that’s the risk.
Why Illiquid Discounts Occur
Market supply and demand
The way ASX trading operates is driven more by sentiment than by fundamental factors; when investors are worried about interest rates, credit quality, or liquidity, they sell, and the price per unit drops even if there has been no change in the underlying loan book.
Underlying asset illiquidity
Private loans can’t be quickly liquidated. A fund manager can’t rapidly sell down the portfolio to close the gap between market price and NTA. That structural illiquidity gets priced into the discount because exit options are limited and investors know it.
Interest rate and market conditions
Rising rates change the calculus for income-generating assets. Risk-off periods tend to widen discounts as investors rotate out of anything that feels complex or illiquid, regardless of the underlying portfolio’s performance.
Risks and Opportunities for Investors
Risks
LITs provide a significant liquidity benefit compared to unlisted funds, as their units can be purchased and sold on the ASX during market hours without waiting in redemption queues or giving notice. However, this liquidity has a drawback familiar to any investor in a listed market: when the number of sellers exceeds the number of buyers, the price per unit drops. This price decline has nothing to do with the performance of the loans in the fund’s portfolio. Even if the fund holds a portfolio of senior secured loans that is performing well, its unit price can still fall simply because market sentiment shifts or another investor decides to exit. Unlike a term deposit or a government bond, there is no par value to act as a benchmark for the market price.
Discounts can persist or deepen. And despite the ASX listing, liquidity in stressed conditions is not unlimited; spreads can widen, and selling in size at a fair price may be difficult.
Opportunities
Buying below NTA means acquiring exposure to assets at a discount to their reported value. Distributions remain tied to the underlying portfolio income, not the unit price. And if the discount narrows over time, there’s a capital gain on top of the income return.
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Private Credit LITs vs Unlisted Private Credit Funds
Neither structure is strictly better. They suit different investors, different liquidity needs, and different portfolio objectives.
| Private Credit LIT | Unlisted Private Credit Fund | |
| Pricing | Market-driven; can trade at a discount or premium to NTA | NAV-based; units bought and sold at the fund’s calculated NAV |
| Liquidity | Exchange-traded; daily liquidity in normal conditions, but unit price falls when supply exceeds demand | Redemption-based; subject to notice periods and gate provisions, but NAV is not subject to market sentiment |
| Volatility | Market price can fluctuate independently of portfolio performance | NAV typically more stable; marks may lag in stressed markets |
| Return premium | No illiquidity premium; investors trade it away for exchange liquidity | Illiquidity premium rewards long-term investors who can accept capital lock-up |
| Access | Available to retail investors via ASX | Generally restricted to wholesale investors |
| Discount risk | Yes; a persistent feature of the listed closed-ended structure | No discount; but gating risk exists in volatile markets |
What to Assess Before Investing
The most important factor is loan quality. What kind of security does the fund have? What is the borrower’s profile: specifically, their industry, size, and level of leverage? Lending on a senior secured basis against real assets is a very different kind of risk compared to subordinated or unsecured lending.
The manager’s track record and the standards followed in underwriting should be carefully examined. The fee arrangements in LITs can consist of several layers, such as management fees, performance fees, and brokerage on transactions on the ASX.
Carefully consider whether the distribution is sustainable. Is the income actually coming from the repayment of loans or is the fund returning capital in order to maintain its distribution rate? Although they appear the same on paper, the two are in fact very different.
How Private Credit LITs Fit Into Portfolios
Together with equities and conventional fixed income, private credit LITs can offer additional yield and true diversification for income-oriented portfolios; they give investors access to private credit without facing the stricter limitations of unlisted fund structures, even though there is a compromise in market price volatility and discount risk.
The LIT structure might be suitable for investors who value access, simplicity and ASX liquidity. On the other hand, investors who can obtain wholesale funds directly eliminate discount risk with the unlisted structure, even though it comes at the cost of different liquidity considerations.
Conclusion
The fact that there is a discount to NTA is not a defect of the structure; it is a natural result of the way markets price complex and illiquid assets within a listed wrapper. Knowing this affects how you assess entry points, risk, and potential returns.
Private credit LITs can indeed provide real income opportunities, but only on the condition that the quality of the underlying loans is good, the manager can keep it that way, and you are investing with a long-term view. The discount is just the beginning, not the entire story.
A Note from Rixon Capital
At Rixon Capital, we manage the Rixon Income Fund, an unlisted wholesale private credit fund focused on senior secured, asset-backed SME lending. We don’t operate a LIT ourselves, but we regularly work with advisers and investors to compare listed and unlisted private credit structures, and we’re happy to help you think through which approach best suits your objectives.
If you’d like to understand how we approach credit underwriting, portfolio construction, or how the Rixon Income Fund compares to listed alternatives, get in touch with the team.
www.rixon.capital
