The evolving role of fund financing in private credit

Private credit has moved decisively from a post-GFC niche to a core component of the financing landscape across Australia and the Asia Pacific region. Global private credit assets under management have expanded rapidly over the past decade, and Australia now represents one of the most established and sophisticated private credit markets in the region, supported by strong institutional participation and sustained demand for alternative sources of capital.

As the market has scaled, the structures that sit alongside it have also evolved. One notable development is the increasing use of fund level financing, including warehouse and net asset value (NAV) style facilities, which are becoming a more permanent feature of private credit fund structures in the Australian market.

This is less a discrete shift than part of a broader trajectory: a maturing market in which capital structures, monitoring frameworks and stakeholder dynamics continue to evolve in response to growth and increasing complexity.

The rise of fund financing in private credit markets

With private credit assets under management in Australia standing at approximately A$234 billion in 2025 (or approximately 15% of all corporate non-institutional grade lending in the Australian market) and a compounded annual growth rate of approximately 21% between 2015 and 2025, the growth of private credit is both remarkable and well documented. 

Perhaps less documented is the pivotal role played by banks in providing capital in the form of warehouse and NAV style facilities to private credit players. These facilities allow private credit funds to borrow against the value of their underlying loan portfolios (while securing those underlying loan assets in favour of their bank lender). While the terms and structures involved still to a large extent remain highly tailored to the relevant fund, they are being deployed with greater frequency as fund managers seek to enhance capital efficiency, manage liquidity and optimise portfolio construction over time. 

This marks a clear shift from four or five years ago, where facilities of this nature were seldom utilised in private credit in Australia (with a caveat to that being larger fund managers or those fund managers operating an Australian arm of an international fund). Today, structuring funds to accommodate fund-level leverage is a key consideration for the majority of private credit fund managers in the market. 

Notwithstanding this increased adoption, the amount of leverage utilised in Australian private credit remains relatively conservative by international standards. The Australian Securities and Investments Commission (ASIC) Report 814 noted that the use of leverage as part of private credit investment in Australia tends to sit in the range of 0-1x, compared to 0.5-2x in the US market (being a measure of the proportion of investment into private credit that is debt funded versus equity funded). While these are necessarily high-level metrics and do not isolate fund-level warehouse/NAV style lending, they nonetheless provide a useful indication as to the quantum of debt that private credit fund managers are using to fund their balance sheets. 

These figures are also relatively conservative when comparing against Australian authorised deposit-taking institutions, which typically fund in excess of 90% of their balance sheets with debt (deposits and wholesale funding), with regulatory capital (equity) in the order of 5-10% of total exposures. 

How fund financing is influencing the relationship between banks and private credit players

At its core, the provision by a bank of a warehouse or NAV facility to a private credit fund represents a significant short- to medium-term investment, and as such is accompanied by a thorough negotiation and due diligence process.

Key negotiation points typically include how the borrowing base is valued (that is, the underlying loans) and whether that valuation is undertaken in the ordinary course by the private credit fund borrower or its back leverage provider, the ability to “look through” to underlying property (in the case of real estate private credit funds in particular), the level of ongoing reporting required by the back leverage provider on individual loan assets or underlying properties, and any requirements for the private credit fund borrower to obtain consent from their back leverage provider before making material decisions at an underlying asset level.

The process for approving assets coming into the borrowing base (and the degree of back leverage lender oversight), together with the timing of approvals and funding at the warehouse or NAV facility level, are also important structuring considerations. These require close coordination between the back leverage provider and private credit fund borrower to ensure the financing meets the fund’s operational requirements while fitting within the institutional parameters of the bank’s credit process.

One consequence of this working relationship is the introduction of an additional layer of oversight of the underlying loan portfolio. In some cases, this may lead to greater loan book discipline, and at a minimum, provides enhanced visibility over the underlying asset pool. 

In this context, the continued development of fund financing structures reflects a broader evolution of the private credit market. As the market deepens, participants are refining how capital is structured, deployed and monitored, reflecting both increased scale and a more complex operating environment.