Nick Donato is a financial adviser at Guidance Financial Services who specialises in helping clients all over Australia aged 30 to 50 get their financial foundations sorted, so they can build wealth and have more choice in life through our Wealth Builder program. You can learn more about it here.

Private equity and private credit are both ways of putting money into companies that aren't listed on a stock exchange. The difference between them is which side of the balance sheet you sit on. Private equity buys ownership — a share of the business, usually a controlling one. Private credit lends money — the fund is the lender, and it earns interest rather than a share of the profits.

Most Australians hold some of both without ever choosing to. Super funds have been allocating to private markets for years, and the size of the allocation is driven by the investment option, not by the member. What determines how much you hold is the option you're in, how that fund defines its growth and defensive buckets, and how much liquidity it needs to keep on hand.

Whether that mix suits your situation is a question for personal advice, not a blog post.

This post is from my conversation with Stephen Zhang on the Wealth Builder series of the Financial Autonomy podcast. Stephen spent his career in investment banking and corporate advisory before moving into investment management. You can listen here:

What is private equity?

Private equity is investing in the shares of companies that aren't traded on a public market.

When you buy CBA or BHP or Microsoft, you're buying public equity. You can look up the price, read the annual report, turn up to the AGM, and sell the lot tomorrow morning if you feel like it.

Private equity works differently. A private equity fund raises money from investors, then uses it to buy stakes in companies that aren't listed anywhere. Usually large stakes. Often controlling ones.

That control is the point. As Stephen put it, a private equity firm will typically "take greater controlling positions, and in doing so, hopefully influence that company in a way to improve what they're doing on a daily basis" — grow the revenue, cut the costs, sell it on in three to seven years for more than they paid.

You can't do that with 400 CBA shares. That distinction matters, and it's most of the reason the two behave so differently.

What is private credit?

Private credit is non-bank lending. The fund isn't buying the company, it's lending to it.

Moneysmart defines it as loans "that are not publicly traded or widely issued publicly" (Moneysmart, ASIC). Investors generally get exposure through a managed fund that pools money and lends it out.

This isn't the kind of lending a bank does to you as an individual. The classic example is a property developer who wants to build a block of townhouses and needs funding on terms a bank won't offer — a different size, a different timeframe, a different rate. A private credit fund may be willing to write that loan, and the investors in the fund earn the interest.

That's not a small corner of the market anymore. Australia's private credit market has grown to roughly $250 billion in outstanding loans, up from around $35 billion a decade ago, with more than half of it lent against property development and construction (ABC News, 20 July 2026).

What's the actual difference between private equity and private credit?

The difference is ownership versus lending, and it shapes everything else.

Private equity owns. If the business does well, the upside is uncapped. If it fails, equity holders are last in line and can lose the lot.

Private credit lends. The return is the interest rate agreed at the start, so the upside is capped no matter how well the borrower does. But lenders rank ahead of owners if things go wrong, and the loan is often secured against something.

Higher up the risk curve, investors generally expect to be compensated with higher returns. That's the theory behind both, and it's worth saying plainly that it is an expectation rather than a promise. Stephen was careful about this on the episode: any single private equity investment "may do really well or it may do relatively poorly compared to other investment opportunities."

Both share a feature that separates them from listed markets — they are relatively illiquid. A private company isn't something you can turn around and sell in a hurry, and the investment thesis is usually to hold for three, five, seven years and do the work in between.

Why is my super fund invested in private markets?

Because super funds are one of the few investors with the time horizon to hold something they can't sell quickly.

Australia's superannuation sector is around $4.5 trillion (ABC News, 20 July 2026), and a fund that knows roughly when it will need to pay members out can afford to lock away a slice of that in assets that take years to realise. The rest of the portfolio — the listed shares, the bonds, the cash — carries the liquidity load.

Across the sector, allocations to unlisted assets averaged about 16.5% as at June 2025, with some of the largest industry funds sitting between 15% and 30% (Morningstar Australia, citing APRA data).

Sector averages aren't the number that matters to any individual member, though. Allocations vary by fund and by investment option, and they tend to be higher in the growth-style options than the conservative ones — which is simply the risk curve showing up in the asset mix. Each fund publishes the asset allocation for each of its options in its disclosure material, and that's where the figure for a particular option can be found.

Moneysmart makes the same point about awareness: "some people may have money invested in private credit without being aware of it, via their superannuation fund."

Working out what you actually hold, and whether the mix suits where you're heading, is one of the first things we do in the Wealth Builder program.

Is private credit risky?

Every investment carries risk. The risks in private credit are just different from the ones most people are used to, and Australia's regulators have been increasingly vocal about them:

Liquidity. Withdrawals may be restricted or delayed, because loans can't always be sold or repaid quickly.
Valuation. Private loans are valued "using models and judgement", so reported prices may not always reflect true market value.
Default. Borrowers can fall behind or fail to repay.
Fees and leverage. Fees are often complex and layered, and some funds borrow themselves, which magnifies losses as well as gains.

ASIC has escalated its language on this through 2026. In July, Commissioner Simone Constant said private credit "is now at a size and at a breadth that hasn't been seen before and certainly hasn't been tested in a downturn", and that "increasingly, every working Australian, investing Australian does have exposure to private credit" (ABC News, 20 July 2026).

By late August, Deputy Chair Sarah Court described what the regulator was seeing as "the first significant cracks" in Australian private credit, pointing to several non-bank lenders restricting investor withdrawals (ABC News, 27 August 2026).

None of that is a prediction, and it isn't a reason to make a decision from a podcast or a blog post. What it does say is that the asset class is being tested for the first time at its current scale, and that a slice of most people's super has some exposure to how that plays out. Knowing what a portfolio actually holds is generally a more useful starting point than a headline about it.

Information current as at 2 September 2026.

Can everyday investors invest in private equity or private credit?

Some funds are open to retail investors. Most aren't, and the ones that aren't are gated by a legal test rather than a preference.

Under the Corporations Act, a person is generally treated as a wholesale client if they invest $500,000 or more in a financial product, or if a qualified accountant certifies they have net assets of at least $2.5 million, or gross income of at least $250,000 in each of the last two financial years (Corporations Act s761G(7)). Those thresholds have not been increased in over 20 years (Cowell Clarke, 2025), which is why more people cross them now than when they were set.

The distinction matters because wholesale clients don't get the same disclosure protections retail investors do. No Product Disclosure Statement, and a narrower set of obligations on the fund. Retail private credit funds must provide a PDS covering features, fees, risks and complaints processes.

So for most people, the realistic exposure to private markets isn't a direct investment. It's the slice inside their super, chosen by the fund.

What's worth thinking about

A few questions this raises, rather than answers:

Which investment option is your super actually in, and when did you last look?
What proportion of that option sits in unlisted or private assets?
Does the liquidity of your overall position match when you're likely to need the money?
If you've been offered a private credit fund directly, do you know how it's valued, what the fees are, and under what circumstances withdrawals can be paused?

Private markets aren't good or bad. They're a different set of trade-offs — less liquidity and less transparency, in exchange for a return the fund expects to be higher over a long holding period. Whether that trade suits your circumstances depends on the rest of your position.

Where this fits

If you're in your 30s or 40s and building wealth, the private markets question usually isn't the first one to answer. It sits underneath bigger ones — where your surplus goes, whether your super is doing what you need it to, and whether the risk you're taking matches the timeframe you're working to.

That's what our Wealth Builder program is for. Twelve months of working through those decisions properly, with a plan that accounts for your actual circumstances rather than a general principle.

Learn more about our Wealth Builder program

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This article is for educational purposes only and does not take into account your individual circumstances. If you would like tailored advice, we can help you work through the numbers properly.