Stepping into Private Credit
Over twelve months ago, we made the move into private credit – both drawn by the opportunity to work in a fast-growing part of the financial industry. While we came from different backgrounds, we were both curious about what it meant to operate in a space that sits at the intersection of investing, credit, and real business problem-solving.
Over the past year at GCI, we have worked directly with borrowers, structuring tailored solutions, and negotiated terms that struck a balance between risk mitigation and commerciality. Since we joined, private credit has continued to grow as one of the most dynamic and reported upon areas within Australian financial markets – and we have seen why first-hand.
What we found is that private credit offers an unusually broad exposure to both financial markets and the real economy. You are not just analysing companies from a distance – you are in the room, understanding business models, asking tough questions, and helping structure solutions that actually move the needle for the borrower. In that sense, it’s been a steep but rewarding learning curve.
Each potential investment offers exposure to a different industry, business model, and risk profile – all while requiring a consistent lens of downside protection and creditworthiness. There is inherent complexity and creativity in structuring deals that aren’t cookie-cutter, especially when working in the mid-market where borrowers often value flexibility and speed over cost of capital alone.
For both of us, moving from large financial corporations to a lean and flat environment has been a meaningful and rewarding experience. At GCI, everyone around the table is deeply invested (both figuratively and literally) in the outcome, and we have seen how this contributes to the responsibility and ownership taken by the whole team. It has been great to see investment decisions made thoughtfully, with space for ideas and opinions to get challenged – and has made the journey into private credit highly engaging.
What We Have Learnt
As we have built our understanding of the private credit landscape, several key insights have shaped our perspective.
-
Private credit doesn’t mean lower quality. A common misconception is that private credit is riskier by default – that higher returns necessarily reflect weaker borrowers. In practice, that’s not always true. The illiquidity premium, smaller deal size, and structural flexibility often account for the return differential. In many cases, the underlying asset quality is strong, but the complexity or speed of the situation means banks aren’t the right fit. For instance, our Asset Backed Finance Fund targets investments that provide first-ranking security at the asset level which on a look-through basis have modest LVRs – enabling risk-adjusted returns that are attractive.
-
You often have more control, not less. There is a common perception that private credit lacks transparency relative to public markets. But in many ways, private lenders can have better information. As part of seeking to deeply understand a borrower’s business and provide custom solutions, private credit terms can require detailed operational and financial reporting, access rights, and direct relationships with management. This translates into better visibility into performance and early warning signs when things change. There is no reliance on ratings or market sentiment – it’s about fundamentals and having the right processes in place. We have seen how important it is not only to monitor investments post-close, but also to be proactive with borrowers in working through solutions.
-
Downside risk is everything. The depth of analysis and due diligence has surprised us – particularly how much emphasis is placed on downside protection. When structuring solutions for borrowers, we also seek to protect against not just the likelihood of default, but also the severity of loss in a downside scenario. Whether it’s asset-backed, cash flow-based, or structured with equity-like features, every deal starts with the question: how do we meet the borrower’s requirements while also getting our money back if things go wrong? That mindset is embedded in how deals are structured, priced, and monitored. As we work through potential investments, we often share our thoughts with borrowers to help them also think about mitigating downside risk in their businesses.
-
Operational risk matters just as much as financial risk. In many transactions, the biggest risks aren’t necessarily credit-related in the traditional sense, but operational – such as servicing risk, fraud, or lack of control over data and cash flows. A lot of work goes into addressing these risks, often via operational oversight, third-party verification, step-in rights, and both formal and informal audits. We have certainly gained a deeper appreciation for the value of well-built operational controls and third-party oversight – things that can easily be underestimated from the outside. Pleasingly, our borrowers appreciate these efforts to understand their business, as in many cases we are able to assist in improving their processes and ultimately prepare them for institutional funding down the track.
-
You must unlock value for the borrower. Private credit is, by nature, more expensive than a traditional bank. To justify that premium, it must do more than just provide capital – it needs to solve a problem or unlock value. Whether it’s enabling a time-sensitive acquisition, releasing trapped equity, or funding growth where banks can’t, the best outcomes come when capital is the final catalyst to transforming a business. This is evident in our approach to investing at GCI, and is why we call ourselves transformational credit – delivering capital that can create meaningful value and really move the needle.
Our thoughts on the future of Private Credit
As traditional lenders continue to pull back in certain segments – particularly for mid-sized, non-sponsored borrowers – private credit is becoming a more mainstream source of capital. This trend has been accelerated by macro conditions: higher interest rates, more selective underwriting by traditional lenders, and a growing need for bespoke capital solutions. The global trend is clear, and Australia is following suit. But the opportunity isn’t just about filling a gap left by the banks. It’s about delivering capital in ways that are faster, more tailored, and more aligned with business needs.
At the same time, capital discipline is more important than ever. With growing investor interest and a wave of new entrants, there is a risk that underwriting standards loosen – but there is a clear distinction between deploying capital and investing it well. The best outcomes in private credit will come from those with deep experience, a vested interest in the success of borrowers, and an unrelenting focus on risk.
At GCI, our focus is on the mid-market – typically transactions between $5 million and $50 million. We view this space as underserved but among the most impactful and transformational for businesses when done right. Each transaction requires a tailored and structured approach to achieve the borrower’s objectives and at the same time safeguard investors’ capital. Our goal is to understand the risks, structure loans creatively, and provide value to both borrowers and investors.
The continued evolution of Australia’s private credit market presents an exciting opportunity. For us it’s about being a true capital partner – helping borrowers grow, navigate complexity, and ultimately succeed. If you would like to discuss with the GCI team our approach to partnering with businesses as a strategic capital partner, please get in touch.
Authored by Ethan Zhu (Investment Analyst) and Sunny Xu (Investment Analyst).