Private Credit Is Entering a New Phase: Why Risk, Regulation, and Structure Now Matter More Than Ever

Private credit in Australia has entered a new phase of maturity. What was once considered an alternative allocation is now becoming an integral part of the broader financial system.

However, as the sector scales, three realities are becoming increasingly important for investors to understand:

• Its growth is structural, not cyclical
• Regulatory oversight is intensifying and reshaping expectations
• And critically, not all private credit strategies carry the same risk

At Millbrook, we view this evolution not as a challenge, but as a reinforcement of what has always mattered most: disciplined credit selection, strong governance, and proactive compliance embedded into day-to-day operations.

1. Understanding Private Credit and Mortgage Funds

Private credit refers to non-bank private lending, where investors provide capital directly to borrowers through a fund manager.

A mortgage fund is a type of private credit strategy where investor funds are used to provide loans secured by real property. Investors are not buying property. They are earning income from lending against it.

At Millbrook, this approach is straightforward. Investor capital is used exclusively to fund loans secured by real property, supported by disciplined credit assessment and structured lending.

Returns are primarily generated from the interest paid by borrowers on the underlying mortgage loans. The level of income investors receive is influenced by the interest rates earned across the loan portfolio, while disciplined credit assessment and property security are designed to help protect investor capital.

As the asset class grows, understanding these fundamentals and how different managers operate becomes increasingly important.

2. Why private credit’s rapid rise is structural – not cyclical

The expansion of private credit is often attributed to short-term factors such as higher interest rates or temporary bank retrenchment. In reality, these drivers only sit on the surface.

The deeper shift is structural.

Traditional banks are increasingly constrained by:

• Elevated regulatory capital requirements
• Reduced risk appetite in construction and development lending
• Standardised credit frameworks that limit flexibility
• Efficiency pressures that prioritise scale over bespoke lending

At the same time, borrowers require:

• Speed of execution
• Flexible structuring
• Tailored credit solutions

This has created a permanent role for private credit as a key provider of real-economy funding, particularly in property-backed lending markets.

At Millbrook, we see this as part of a broader evolution in credit intermediation—where managed capital plays an increasingly important and enduring role alongside traditional banking channels.

3. How ASIC scrutiny is reshaping the sector

As private credit has grown, so too has regulatory attention, particularly from ASIC—focused on transparency, valuation practices, disclosure quality, and governance standards.

This is not a negative development. It represents a turning point in the professionalisation of the sector.

The increased focus on:

• portfolio valuation integrity
• investor disclosure standards
• liquidity alignment with underlying assets
• governance and conflict management

is effectively raising the baseline expectations for all managers.

At Millbrook, we welcome this shift. Our philosophy has always been that compliance should not be reactive. It should be embedded within operations and managed proactively.

For example, we implemented detailed quarterly portfolio reporting across our pooled funds more than 12 months ago, well ahead of evolving regulatory expectations. This initiative was designed to enhance transparency and ensure investors have clear, consistent insight into fund performance and underlying exposures.

We also undertake regular reviews of our offer documents, policies, and procedures to ensure they remain aligned with evolving ASIC guidance and best practice standards.

In addition, our compliance framework is supported by:

• strong internal reporting and control processes
• an independent compliance committee
• regular independent audits of financials and compliance plans
• ongoing oversight aligned with ASIC requirements

For us, regulation is not a box-ticking exercise—it is a core part of how investor confidence is maintained over time.

4. Why not all private credit strategies carry the same risk

One of the most important misunderstandings in the market is the assumption that “private credit” represents a single, uniform risk category.

In reality, it is a broad spectrum of strategies with materially different risk profiles.

At one end of the spectrum are:

• senior secured first mortgage strategies
• conservative loan-to-value (LVR) structures
• clearly identifiable underlying real estate security
• disciplined credit assessment and underwriting
• defined exit pathways (sale or refinance)

At the other end are strategies involving:

• subordinated or mezzanine exposures
• higher leverage and thinner equity buffers
• corporate lending without the backing of property security
• more complex or layered security structures

While both sit under the broad umbrella of private credit, they offer fundamentally different levels of capital protection and sources of repayment.

Millbrook’s lending strategy is focused on loans secured by real property. Every investment is backed by registered mortgage security over identifiable property assets, with disciplined loan structuring, conservative lending parameters and rigorous credit assessment designed to prioritise capital preservation.

We also actively manage potential risks that are common across the sector, including:

• disclosure clarity around illiquid investments
• valuation discipline for non-traded assets
• early identification and transparent management of conflicts of interest

Importantly, Millbrook prohibits related-party lending across its funds, ensuring investment decisions are made independently and in the best interests of investors.

5. Governance as a source of investor confidence

For us, governance is not separate from performance—it underpins it.

Regulation exists to protect investors, and our responsibility is to meet those obligations while ensuring information is clear, meaningful, and actionable.

By maintaining strong governance structures and high levels of transparency, we aim to create an environment where investors can focus on long-term outcomes, confident that the underlying framework supporting their capital is robust, disciplined, and independently overseen.

This is particularly important in private credit, where investments are not traded on public markets and therefore rely heavily on manager integrity, process discipline, and reporting quality.

6. Looking forward: the next phase of private credit

As private credit continues to expand, regulatory expectations around transparency, disclosure, and risk management will continue to evolve.

This is a natural and necessary part of the market’s maturation.

At Millbrook, we closely monitor these developments and proactively adapt our frameworks ahead of change, rather than in response to it. This allows us to maintain alignment with best practice standards while ensuring our investors benefit from a consistently well-governed and transparent investment platform.

Ultimately, we believe the future of private credit will not be defined by scale alone but by the quality of governance, discipline in credit selection, and the ability of managers to maintain trust through cycles.

Final Perspective: Why discipline is now the real differentiator in private credit

Private credit is no longer defined by access or novelty. It is defined by how effectively risk is identified, structured, and managed through the cycle.

As the market continues to grow and regulatory expectations evolve, investors are increasingly distinguishing between managers based on process quality rather than product labels.

At Millbrook, we believe short-term conditions do not drive the most important outcomes in private credit, but by long-standing principles:

• disciplined credit underwriting
• disciplined loan structuring and real property security
• proactive, embedded compliance
• and transparent, consistent investor reporting

This is why we continue to invest heavily in governance, reporting, and operational oversight, not as a response to market change, but as a core part of how we operate.

In an evolving private credit landscape, the most durable advantage is not market timing or yield positioning; it is the consistency of decision-making and the integrity of the framework behind every investment.