In a choppy world, SMSFs are steering toward calmer waters in private credit

With markets shaky and super rules shifting, SMSFs turn to private credit for income and stability.

SMSFs are turning more and more to private credit for steady returns, says Zagga. Picture via Getty Images

• Why more SMSFs are turning to private credit

• Zagga says private credit is less correlated to markets

• The company backs the borrower, not just the asset

 

Special Report: With markets on edge and super rules shifting, SMSFs are turning to private credit for steady income, lower volatilty, and attractive risk-adjusted returns.

In a world that seems to lurch from one crisis to the next – pandemic, rate shocks, geopolitical upheaval – it’s no wonder investors are rethinking the old game plan.

Gone are the days when capital growth was everything. Today, defensive is the new aggressive.

As the dust settles on a turbulent financial year, and Division 296 looms large on the super tax horizon, Aussie investors are waking up to a sober truth: you don’t have to shoot the lights out to build a smart portfolio. Sometimes it’s about holding the torch steady.

The focus has now shifted from big swings for capital growth to something a little more... sensible. Income, consistency, capital preservation.

And that’s why private credit, a once-niche corner of the market, is starting to get more airtime.

One such local player is Zagga, a specialist real estate private lender focused on mid-market secured loans along the Australian Eastern Seaboard.

Zagga’s CEO and Co-Founder, Alan Greenstein, explained that investors simply do not like uncertainty. Especially when you’re talking about their super.

“Investors are saying, ‘Hey, let me put my money into something that’s going to give me a reasonable, predictable yield, with a very low risk of losing my principal.

“That’s the appeal of real estate private credit.”

Why the smart money is drifting off market

Private credit isn’t listed. It doesn’t trade. And most of the time, it doesn’t flinch when markets panic.

At its core, it’s just lending. Investors provide capital, borrowers pay it back with interest, and the loan is usually secured against a real asset such as property.

That simplicity, Greenstein said, is a big reason it’s gaining popularity among SMSF investors looking for stable income.

“If I buy shares in a company and there’s a data breach, the share price might tank, even if the business is fundamentally fine.

“That kind of volatility just doesn’t exist in private credit.”

Traditional bonds, especially listed hybrids, have also become more correlated with equities – which defeats the purpose of holding them as a hedge.

In contrast, private credit sits outside that cycle. It provides a rare source of returns that isn’t dragged around by market sentiment.

In real estate private credit, loans are commonly structured with floating interest rates, meaning the margin above the benchmark remains consistent.

This rate alignment offers a built-in hedge, unlike traditional bonds which usually lose value when rates rise.

“It also helps smooth returns over time when compared to the volatility experienced across other asset classes,” said Greenstein.

Why SMSFs are taking a closer look

Greenstein also believes private credit has evolved from being an “alternative” in portfolios to a genuine peer to fixed income.

And for SMSF investors, that appeal is multi-fold.

Many SMSF investors aren’t trying to outperform the market. They just want steady income without the daily market noise.

Zagga’s flagship Feeder Fund, for instance, delivered 9.68% year-to-date (net of fees with distributions reinvested) and has never posted an investor loss since inception.

Greenstein believes this could potentially offer SMSFs a compelling alternative for generating yield income without excessive risk.

“Ride the jockey”

But behind that yield, quality control is everything.

Zagga said it reviewed around $4.5 billion worth of deals in 2025, but only wrote 17% of them.

The due diligence goes deep – borrower history, project viability, market demand, feasibility, builder credentials – the lot.

Most borrowers are “bank grade”, but they often choose Zagga instead, drawn by the platform’s speed and deep market understanding, explained Greenstein.

And crucially, around half of Zagga’s current borrowers are repeat clients, some on their sixth or seventh transaction with the firm.

Zagga backs the borrower first, because even the best deal can go sideways if the sponsor isn’t up to scratch.

“We ride the jockey, not the horse.

“A good jockey will win on a bad horse, but a bad jockey won’t necessarily win on a good horse.”

Not just pick-and-pray

Zagga’s model lets investors either spread exposure through managed funds or handpick individual loans for a potentially higher headline yield.

Loan terms typically range from three to 24 months. If you’ve got six months of capital, you can choose a six-month loan. Want to lock in for two years? That’s available, too.

Funds also come with varied liquidity options. The Wealth Fund offers 90-day access. The CRED Fund, a unitised product on platforms, provides 30-day liquidity.

So where does this fit in the bigger portfolio conversation?

Traditional portfolios were built on a neat correlation story: bonds hedge stocks. But the market has shattered that belief, with both falling in tandem.

As investors reassess their strategies, many are now shifting to a 25/25/25/25 model – balancing equities, fixed income, alternatives, and private markets.

In that context, Greenstein believes private credit ticks a lot of boxes: steady income, inflation defensiveness, and low market correlation.

But as interest rates start to fall, as the market expected they would, he warns against anchoring to an arbitrary number.

“When you’re looking at return, look at return relative to what it is you’re benchmarking against,” he explained.

“If you just say, I want 14% and the cash rate is 3.85%, you are taking enormous, enormous risk.”

So… private credit isn’t flashy, but in a jittery world, that might be the point.

It’s for those who know that a steady 9% today is worth more than a theoretical 14% tomorrow – especially if it never lands.

And for SMSF investors after reliable income without the noise, it might just be time to ride the jockey.

This article was developed in collaboration with Zagga, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.