Imagine checking your superannuation statement and discovering that part of your retirement savings is invested in loans you never personally approved, made to businesses or property developers you may have never heard of.

For millions of Australians, this is already a reality.

Private credit, a form of lending outside the traditional banking system, has quietly become one of the fastest-growing areas of finance. While it has helped businesses access funding and provided investors with the potential for higher returns, regulators are now asking a bigger question: do investors fully understand the risks behind this rapidly expanding market?

Unlike traditional bank loans, private credit involves non-bank lenders providing financing directly to companies, property developers and other borrowers. Investors, including large institutions and superannuation funds, provide the capital in exchange for interest payments.

The attraction is clear. In a world where investors have searched for stronger returns, private credit has offered an alternative to traditional investments such as bonds. For businesses, it provides access to funding when banks may be unwilling or unable to lend.

For example, a property developer needing funding for a new housing project may turn to a private lender instead of a traditional bank. The investor earns interest from the loan, while the developer gains access to capital to complete the project.

But the same features that make private credit attractive can also create risks.

Unlike shares traded on public markets, private loans are not easily bought and sold. Investors may have limited visibility into the health of the underlying businesses borrowing the money. If economic conditions worsen, borrowers may struggle to repay loans, creating losses for investors.

These concerns are becoming more significant as the market expands.

In Australia, private credit has grown from approximately A$35 billion a decade ago to around A$250 billion today. The sector has also become increasingly connected to the country’s A$4.5 trillion superannuation system, meaning many Australians may have exposure through their retirement funds without actively choosing the investment.

More than half of Australia’s private credit lending is linked to property development and construction, increasing sensitivity to changes in the housing market.

Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), has urged investors to better understand how private credit works and what risks may exist, particularly as the sector grows.

However, experts argue the issue is not whether private credit should exist. The market plays an important role in providing businesses with alternative financing and supporting economic activity.

The bigger question is transparency.

As private credit becomes a larger part of modern finance, investors may need to ask a simple question: where exactly is my money invested, and do I understand the risks behind it?