SMSF’s and Private Credit

Self-managed superannuation funds (SMSFs) in Australia are allocating a significant proportion of their assets towards Australian shares, property, and cash and largely ignoring fixed income investments.

This imbalance exposes these retirement funds to heightened vulnerability in the event of a downturn in either the Australian equities or property markets.

The figures below are sourced from the ATO SMSF Quarterly Statistics Report (December 2025)

• $1.06 trillion – Total size of SMSF Assets in Australia
• SMSF’s now represent 24% of total superannuation funds.
• Breakdown by numbers:
  • 27% in equities (domestic and international)
  • 16% in cash and cash equivalents such as term deposits
  • 16% in direct property 
  • 1.25% in debt securities / fixed income
  • 0.50% in lending / private credit
  • Average value of SMSF assets $1.635 m
  • Approx. 664,000 SMSF’s and 1.23 million members

What is Private Credit?

Real Estate Private Credit refers to loans provided by investors such as High Net Worths, Family Offices, Institutional Investors and Superannuation Funds- to qualified borrowers to fund business growth, property acquisitions, pre-development and construction.

Research from the University of Adelaide’s International Centre for Financial Services, commissioned by the SMSF Association, shows that self-managed super funds (SMSFs) have, on average, outperformed APRA-regulated super funds by 1.2 percentage points over a five-year period up to June 30, 2023. This shows that SMSFs tend to offer more consistent returns over time.

Between July 1, 2018, and June 30, 2023, SMSFs had an average return of 6.5% per year, compared to 5.3% for APRA-regulated funds. The data shows that the median rate of return for SMSFs in the year ended June 30, 2023, was 6.8% compared with 8.4% for retail and industry funds regulated by the APRA, which is most likely due to SMSFs smaller allocation to international markets.

Benefits of Private Credit

Broadly speaking, an allocation to private credit can potentially enhance risk adjusted returns, as well as boost diversification and provide a consistent income stream. Investors in real estate private credit benefit from stringent loan process, lending and compliance policies and security over borrower assets. That is why it’s so important for SMSF and other retiree investors to better understand the resilient returns offered by private credit. 

Private credit can replace or complement other sources of investment income such as that from property rents or fixed-income assets such as government or corporate bonds. Importantly, private credit can act as a powerful source of portfolio diversification and stability against other asset classes such as equities with renewed volatility

Division 296 Changes 

Proposed change to super tax rate from 15% to 30% for individuals with total super balances exceeding $3m, effective July 1, 2026. (Note the additional tax is applied only to balances above $3m). In addition to taxing earnings, the tax will include provisions for taxing unrealised capital gains. Investors, including SMSFs, should, and are beginning to, consider income-generating investments to mitigate this.

Private credit investments can deliver investors attractive risk adjusted returns of 7%-9% per annum, which compares favourably with the average returns on cash savings accounts/term deposits. These returns are also attractive compared to rental yields on residential investment properties, which typically fall below 3%. Furthermore, private credit funds typically pay a premium to returns on Australian investment grade corporate bonds, as measured by the S&P Australia Investment Grade Corporate Bond Index. 

Choosing the right Private Credit Manager

As with any investment, there are several key considerations when selecting a Private Credit Manager

• Track Record. Evaluate Private Credit provider’s track record, expertise, and risk management capabilities. Is there a proven history of successful lending, loan management, and credit industry knowledge.
• Investment Structure. Does the Private Credit manager provide access to pooled funds, or single loan discretionary funds, or both. Which one is more appropriate for your SMSF investment needs. Assess the manager’s approach to borrower relationships.
• Manager Due Diligence. Assess manager’s experience across ALL credit cycles, quality of loan management and covenant monitoring. Ensure valuation methods are rigorous, so value of underlying secured property is accurately represented
• Transparency. Ensure manager is transparent in reporting and fee structure, loan arrears and potential conflicts of interest.
• Conflicts of Interest. Ensure the manager is not conflicted and if they are, there is full disclosure along with documented risk mitigants.

 

Footnote: The Growth of Private Credit

• Circa 2000, Estimated global value $40 billion.
• 2025 estimated total global value $2.8 trillion.
• Private Credit in Australia is estimated to be valued at $224 billion. 
• Factors assisting growth in Private Credit- include Banking deregulation and massive growth in mortgage broking, changes to regulatory regime for banks, and onerous capital requirements have made lending more expensive. 
• Banks have scaled back – Commercial Lending, Asset Backed Lending, Real Estate and Corporate Lending