Access challenges
For many years, access has been one of private credit’s greatest challenges. Most investments have been made through closed-end unlisted funds that require long lock-up periods and offer limited redemption opportunities. While these structures are well suited to the long-term nature of private lending, they have also limited participation by investors who require greater certainty around governance, reporting and portfolio construction.

This has created an interesting paradox. Institutional investors increasingly recognise the role private credit can play in enhancing portfolio returns and supporting the real economy, yet practical considerations around liquidity, regulatory treatment and operational complexity have often slowed allocations.

One of the most significant funding gaps exists within the so-called ‘missing middle’ – established small and medium-sized businesses that have outgrown microfinance but remain underserved by standardised bank lending. These businesses are often profitable, employ substantial numbers of people and have strong growth prospects, yet struggle to obtain funding tailored to their needs. The funding gap in this segment of the market is estimated at R350bn.

Traditional banks continue to play an indispensable role in the financial system, but their lending models are necessarily standardised and subject to regulatory capital requirements. Many growing businesses require greater flexibility, faster decision-making, and financing structures that better reflect their cash-flow cycles. Private credit managers have increasingly stepped into this space, complementing rather than replacing the banking sector by providing customised lending solutions where conventional finance may be less effective.

The South African difference
Importantly, this is not a new phenomenon. South African private credit managers have been financing businesses for decades, building expertise across sectors ranging from trade finance and property development to renewable energy and specialist non-bank lending. Unlike some developed markets, South Africa has largely avoided the widespread use of ‘covenant-lite’ loans that have attracted criticism overseas. Instead, lenders have generally maintained disciplined underwriting standards, conservative leverage levels and comprehensive security packages designed to protect investor capital throughout economic cycles.

Strong underwriting remains the cornerstone of successful private credit investing.

Experienced managers typically undertake extensive stress testing of borrowers’ projected cash flows, assessing their ability to service debt under varying economic conditions, including changes in interest rates, inflation and growth assumptions. Lending decisions are supported by robust credit committees, contractual reporting requirements and carefully negotiated covenants that provide early warning indicators should business performance deteriorate. Diversification across sectors and borrowers further helps reduce concentration risk within portfolios.

Innovation in structuring
Yet even with these strengths, one issue has continued to constrain broader institutional adoption: the way private credit is packaged for investors.

Historically, private credit investments have largely been accessed through traditional private market fund structures. While entirely appropriate for many investors, these vehicles can create operational challenges for institutions that manage liabilities, require predictable cash flows or operate within specific regulatory frameworks.

This has prompted growing interest in whether the benefits of private credit can be combined with some of the characteristics investors associate with traditional, listed fixed-income instruments. One example of this evolution is the recently-launched Creation Yield Fund, which combines privately originated debt with a listed note structure on the Cape Town Stock Exchange. The innovation is not in changing the fundamentals of private credit, but in changing how institutional investors gain exposure to the asset class. Uniquely, by combining the governance and oversight features traditionally associated with private market funds with the accessibility of a listed fixed-income instrument, the structure seeks to provide greater transparency, contractual income payments and, over time, improved tradability, while remaining focused on the underlying discipline of private credit investing.

Portfolio construction
This evolution also has important implications for portfolio construction. Listed debt instruments can fit more naturally within institutional fixed-income allocations, while predictable contractual cash flows make it easier for investors to match assets against future liabilities. In South Africa, listed structures may also provide a more straightforward route for retirement funds seeking private credit exposure within existing regulatory frameworks. As market participation grows and secondary market activity develops over time, these structures could begin occupying an intermediate position between traditional listed bonds and fully illiquid private market funds.

None of this eliminates the inherent characteristics of private credit. The underlying loans remain long-term investments, and secondary market liquidity will inevitably depend on investor participation. However, providing investors with greater optionality represents an important step in broadening access without fundamentally changing the nature of the asset class.

Looking ahead, South Africa’s private credit market appears well positioned for continued growth.

Innovations such as the Creation Yield Fund suggest that the next phase of South Africa’s private credit market may not be driven solely by increasing allocations to the asset class, but also by improving the structures through which capital is deployed. If institutional investors can access private credit through vehicles that offer stronger governance, greater transparency and portfolio characteristics that are familiar to fixed-income investors, the asset class is likely to become an increasingly mainstream component of long-term institutional portfolios.

​

​

​