In our prior examinations of the South African fixed income universe, we detailed the structure and participant dynamics of the listed debt market. We established that this market is characterised by persistent illiquidity, driven by the dominance of institutional investors, such as life insurers and asset managers, who often adhere to conservative, “buy-to-hold” strategies. This environment, while offering predictable income streams and stable portfolio performance for some, restricts the ability of market participants to rapidly reallocate assets or respond effectively to evolving market conditions. The scarcity of buyers and sellers of the same instrument at the same time perpetuates this cycle.

However, the discourse on corporate debt must now pivot to address a far larger, yet less visible, segment of the market: Private Credit.

The global financial ecosystem is undergoing a profound transformation, marked by a significant migration of corporate debt from public, listed or syndicated markets toward bespoke, privately negotiated solutions. This evolving landscape, often termed private credit or direct lending, has swelled exponentially, with global assets under management (AUM) exceeding $2.5 trillion and projected to reach $3 trillion by 2028. South Africa, with its developed financial sector and large institutional investor base, is emerging as a critical participant in this sophisticated asset class not only for local investors, but on the global stage.

For financial market participants, grasping the drivers and dynamics of this shift, and its specific manifestation in the South African context, is paramount.

The Global Macro Shift: The Retreat from Public Credit

This global retreat from traditional public credit markets can be attributed to a convergence of factors on both the supply and demand sides of the equation. Traditional supply is impacted by regulatory hurdles and associated costs. Simultaneously, investors are now more sophisticated in their processes than ever before, and are less focused on whether an instrument is listed, something that was once a firm requirement.

Following the 2008 Global Financial Crisis (GFC), stringent regulatory requirements fundamentally altered the risk appetite and operational capacity of traditional commercial banks. Facing increased capital adequacy and liquidity constraints, banks began scaling back on lending, particularly to medium-sized or complex clients perceived as “risky”. This regulatory creep has created a substantial funding gap. Non-bank financial institutions (NBFIs) and specialist debt funds have stepped in to fill this gap, operating largely outside the rigorous capital perimeter of banking regulation. For instance, banks now struggle to provide term funding lasting longer than three years at competitive pricing, leaving room for fund managers to adopt a longer-term lending perspective. Basel III regulations, the most recent iteration of the core regulatory framework governing the capital reserves of these banks, is equally reinforcing these constraints.

Concurrently, institutional investors globally, including pension funds and asset managers, have driven immense demand for private credit. They are actively searching for asset classes that offer attractive risk-adjusted returns, diversification benefits, and enhanced yields compared to traditional debt instruments. Historically, private credit has demonstrated the potential to deliver superior returns, compensating investors for the asset class’s inherent illiquidity and perceived risk.

From the borrower’s perspective, private credit offers a superior user experience characterised by speed, flexibility, and confidentiality. Unlike standardised public debt instruments, private debt instruments can be customised with bespoke structures, flexible repayment schedules, and tailored covenant arrangements that align precisely with a borrower’s unique operational and financial requirements. In addition, transactions can often be executed faster, providing funding certainty more quickly than going through traditional bank credit committees or syndicated loan processes.

The True Scope of Private Credit in South Africa

In the South African financial context, the definition of private credit requires a nuanced understanding, extending beyond the common perception of merely funding high-risk, mid-market enterprises or providing smaller, high-yield investment opportunities.

Private credit, fundamentally, encompasses any instrument that is not publicly listed. This broad scope means it covers all forms of debt funding provided by non-bank lenders outside of the listed bond market.

It is important to remember that this asset class includes the debt raised by large, listed companies through private channels. The pool of entities requiring debt funding in the private market vastly surpasses the handful of major corporate issuers (around 25 entities annually, excluding government and SOEs) active in the local listed debt market. Given that there are nearly 300 listed companies in South Africa, most of which require some form of debt funding, the opportunity in the private credit space is significantly broader than in the listed space.

The South African Landscape

South Africa’s private credit market is influenced by the unique dynamics of its capital markets. The listed debt market is infamously characterised by illiquidity due to the dominance of institutional investors who typically hold assets until maturity. The resulting lack of a robust secondary market makes establishing reliable mark-to-market prices problematic.

Furthermore, the attractive yield and high liquidity offered by South African Government Bonds (SAGBs) often make corporate credit comparatively unattractive for conservative asset managers, discouraging diversification away from sovereign risk.

In this context, private credit provides essential capital to areas traditionally underserved, overlooked or deemed too complex by traditional banks. This includes addressing South Africa’s estimated R509 billion SME credit gap, supporting job creation across 19 distinct economic sectors. It also channels funding into development priorities like affordable housing, student accommodation, and infrastructure, offering both financial returns and measurable social impact. Major institutional investors, such as the Public Investment Corporation (PIC), are increasingly turning to private debt for its clear structure and reliable income, favouring it over illiquid equities and complex private equity deals across the continent.

Bridging the Transparency Gap: The Digital Ecosystem

A key structural limitation of global private credit markets, particularly relative to public markets, is their opacity, lack of price discovery, and illiquidity. As we have discussed previously with the Ghost Mail community, over reliance on mark-to-market pricing in illiquid markets can be deeply misleading as a single distressed trade can skew valuations far from a bond’s intrinsic worth (or fair value).

To address these challenges and enhance market efficiency, integrity, and transparency in South Africa’s fixed-income ecosystem, Intengo is employing technology to bridge the mechanics of private and listed credit.

A critical component of this emerging infrastructure is the ability to manage private and bespoke instruments seamlessly alongside more traditional public assets. Achieving operational and liquidity interoperability between these two segments would mark a major step forward, creating a more efficient, integrated, and resilient financial ecosystem.

Workflow Automation: The use of advanced workflow tools enables automation of crucial processes such as new fundraise creation for issuers, electronic fund allocation for selected investors; and integrated settlement orchestration. Automation reduces operational errors in both public and private debt issuance. However, continued reliance on manual processes, such as managing private transactions outside of the platform, increases the likelihood of errors. This further reinforces the value of a unified, automated workflow solution.

Multi-Asset Liquidity: Addressing the limited secondary trading volume requires a system that extends well beyond traditional listed bonds. Future advancements in the industry must establish a centralised venue for multilateral negotiation and trading of a range of assets, merging traditional listed instruments with dematerialised loans or notes, REPOs, and other structured products. This shift supports the goal of improving liquidity and execution capabilities for the entire market.

Intengo Market provides a digital ecosystem designed for debt issuers, investors, and intermediaries that is addressing these exact market challenges.

Crucially, Intengo enhances pricing transparency and discovery by integrating market intelligence and leveraging its unique data advantage. The platform collects anonymised auction bid-level data and secondary market trading data to build independent fair value curves. Unlike models based solely on listed data, Intengo’s approach incorporates the collective intelligence of the local institutional investor base to model credit spread curves that reflect true market consensus. This separates fundamental value from short-term market volatility, delivering rigorous, transparent analytics that bring private credit pricing closer to the efficiency of public markets.

Conclusion

The expansion of private credit is not a cyclical phenomenon, but a structural shift driven by an evolving and more sophisticated investor universe couple with a cost sensitive issuer base. While the inherent challenges of illiquidity, complexity, and valuation opacity remain central to the asset class, the South African market presents compelling opportunities for institutional investors who possess the local expertise to navigate its complexities. By leveraging technological platforms to enhance origination capabilities, data transparency and streamline transaction execution, the South African private credit market is poised to mature further, providing critical bespoke financing for growth while delivering potentially attractive risk-adjusted returns for sophisticated institutional investors.