Not All Private Credit Is the Same: How African SME Lending Answers Wall Street’s Biggest Concerns by Warren Wheatley

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Not All Private Credit Is the Same: How African SME Lending Answers Wall Street’s Biggest Concerns by Warren Wheatley

Wall Street is nervous about private credit, and with good reason. A torrent of capital has flowed into the asset class over the past decade, and cracks are now appearing. High-profile bankruptcies at First Brands and Tricolor in late 2025, warnings from JPMorgan CEO Jamie Dimon about ‘cockroaches’ in the credit system, and Jeffrey Gundlach’s prediction that private credit will trigger the next financial crisis have put the entire asset class under a harsh spotlight.

The criticisms are serious: self-assessed valuations, hidden leverage, covenant erosion, opaque reporting, and a worrying web of interconnectedness with the traditional banking system. The US Department of Justice has warned about ‘creative marks’. The SEC is investigating rating agency conflicts. The true default rate, may approach 5%, not the sub-2% headline figure routinely cited.

These are legitimate, structural concerns. But they are concerns about a specific kind of private credit: large-scale, leveraged-buyout-adjacent, opaquely structured US direct lending, a market that has ballooned to $3.4 trillion and now faces its first real stress test through a credit cycle.Altvest Credit Opportunities Fund (ACOF) is a different animal entirely. It operates on a different continent, serves a different borrower base, is subject to different regulatory disclosure obligations, and was built on structural principles that are the direct antithesis of everything critics are attacking. This article sets out precisely how, and invites investors and analysts to compare the evidence.

The Critique: What Is Actually Being Attacked?

The major criticisms of US private credit, drawn from Federal Reserve research, SEC speeches, academic literature, and financial press investigations, can be grouped into ten structural concerns:

Valuation opacity: Lenders self-value illiquid loans with no external market check, creating incentives to delay loss recognition.
PIK abuse: PIK structures allow borrowers to defer cash interest, masking true leverage and creating a ‘shadow default rate’ that can be multiples of the headline figure.
Covenant erosion: The rush to deploy capital has gutted protective covenants, over 90% of US leveraged loans are now issued without meaningful maintenance covenants.
Loosening standards: The flood of capital from institutional and retail investors has pressured lenders to compromise on underwriting standards.
Liquidity mismatch: ‘Evergreen’ semi-liquid retail funds have grown to ~$220 billion, promising liquidity on inherently illiquid assets; a structural mismatch.
No disclosure: Private credit markets operate in near-total opacity, with no standardised or regular public disclosure of loan performance.
Bank interconnectedness: US banks have lent over $1.2 trillion to private credit vehicles, creating systemic contagion pathways that regulators have flagged.
Retail exposure: The Trump administration’s move to allow alternatives into 401(k) plans risks exposing retail investors to complex illiquid structures.
No social purpose: The social utility of most US private credit is limited to leveraged buyouts and financial engineering — not job creation or economic development.

ACOF’s Response: Built Differently, by Design

ACOF was not built in response to these criticisms , it was built and established before most of them had crystallised into mainstream concern. The structural decisions that now read as counterpoints to Wall Street’s problems were made for straightforward reasons: they are the optimal way to run a non-bank lender serving small businesses in Africa.

Transparent, Regulated, Regular Disclosure

ACOF publishes quarterly loan book performance updates on the JSE’s SENS news service, the same regulated channel used for listed company announcements. Our most recent announcement, dated 13 March 2026, is a public document: AUM of R502m, current loan book of R267m, security of R671m, ECL provision of 3.76%, arrears of 2.79%, bad debts written off of 0.09%, outstanding DMTN notes of R407.2m, and social impact metrics for 44 SMEs and 2,084 jobs. Every number is disclosed. Every comparative period is provided. Accounting policies are stated and consistent with IFRS as applied in audited annual financial statements.

Our publication was not a press release. It was a regulated market announcement. The contrast with the opacity of US private credit could not be more stark.

Listed Debt and Listed Equity: Real Secondary Market Access

ACOF is funded through a ZAR5 billion DMTN programme listed on the CTSE, with outstanding notes of R407.2m under instrument codes 4ACD01 and 4ACD03. This is not an evergreen fund with a side-pocket redemption mechanism and a redemption gate. It is listed debt, subject to exchange rules, with a functioning secondary market.

ABC, the parent and ultimate vehicle for equity investors and our direct equity instrument to the private credit fund, is listed on a number of exchanges, including: JSE (BAC), OTCQB (AFBCF), and Frankfurt (4BC). The liquidity mismatch critique that haunts semi-liquid private credit funds in the US simply does not apply here. Investors can buy and sell both the debt and the equity on regulated, transparent exchanges.

Security-First Underwriting: Hard Assets, Not Paper Covenants

Every loan in ACOF’s book is secured. The fund maintains a security coverage ratio of 1.5x to 2.0x across the portfolio — currently 2.52 x. Against a loan book of R267m, ACOF holds R671m in security. This is not financial covenant protection that a borrower can engineer around with EBITDA addbacks. It is tangible asset security: property, plant, equipment, and receivables, the kind of collateral that retains value when a business gets into difficulty.

The US private credit critique of covenant erosion, where over 90% of loans now lack meaningful maintenance covenants, is a product of a market where lenders compete on terms to win mandates from private equity sponsors. ACOF’s borrowers are not PE-backed. They are owner-managed SMEs with real balance sheets and real assets to pledge. Security discipline is non-negotiable.

Active Portfolio Management and Monitoring

ACOF’s risk management does not end at loan origination. Every loan is subject to continuous monitoring through monthly financial reporting, covenant compliance checks and direct engagement with borrowers. Where performance deterioration is identified, management intervenes early through restructuring, enhanced security, or operational support to the borrower. This hands-on portfolio management approach is typical of relationship-driven SME lending and differs materially from the capital-markets style monitoring typical of large private credit platforms.

IFRS 9 Valuation: No Self-Marking, No Level 3 Games

ACOF measures all loans and receivables at amortised cost using the effective interest rate method under IFRS 9.4.1.2. Expected Credit Loss provisions are calculated in accordance with IFRS 9: Financial Instruments. The methodology is applied consistently with the accounting policies in the audited annual financial statements.

There is no discretionary NAV calculation. There is no Level 3 fair-value model where management can adjust inputs to avoid showing losses. The amortised cost framework, combined with mandatory ECL provisioning, ensures that deterioration in loan quality flows through to the balance sheet on a timely basis. The DOJ’s warning about ‘creative marks’ is not a concern that applies to ACOF.

Small, Granular, Diversified: Not Concentrated Mega-Deals

The average loan in ACOF’s book is R5.9m. The largest single loan is R30m. There are 50 loans across 44 SMEs in 21 distinct industries. This is the structural antithesis of the US private credit market, where funds compete to write $500m+ unitranche facilities to PE-sponsored mega-cap businesses.

Concentration risk: one of the most dangerous features of large-format US direct lending is minimal at ACOF. No single borrower represents more than approximately 11% of the loan book. Industry diversification across 21 sectors means that stress in any one industry has limited contagion to the rest of the portfolio.

No Bank Funding Lines: Structurally Isolated from Contagion

The systemic concern about private credit in the US is partly a concern about its funding: US banks have lent $1.2 trillion to private credit vehicles, creating a web of indirect credit exposures that could transmit a private credit shock into the banking system. ACOF is funded by noteholder capital through its DMTN programme, not by short-term bank revolving credit facilities. This removes ACOF entirely from the bank-interconnectedness contagion chain.

Positioning Through a Credit Cycle

The structural features described above — conservative loan sizing, tangible collateral security, cash-interest lending, and diversified SME exposure — are designed specifically to support portfolio resilience through a credit cycle. These characteristics differ fundamentally from leveraged buyout-driven private credit markets where refinancing risk and covenant erosion often amplify downturns.

Alignment with Investors

Africa Bitcoin Corporation, the parent company of ACOF, maintains direct economic exposure to the performance of the credit portfolio through its equity participation. This alignment ensures that the interests of management, noteholders and equity investors remain closely linked in the long-term performance of the loan book.

The African Imperative: Private Credit as Development Finance

There is a more fundamental point that the US private credit debate misses entirely: in Africa, non-bank SME lending is not a yield-enhancement strategy. It is an economic necessity.

South Africa’s unemployment rate exceeds 31% on the expanded definition. Access to formal bank credit for small and medium enterprises, particularly those owned by women and first-generation entrepreneurs, remains severely constrained. The legacy banking system, shaped by decades of apartheid-era capital allocation, does not serve this market.

ACOF was created to fill this gap. As at 28 February 2026, the fund has supported 2,084 jobs across 44 SMEs in 21 industries, at a cost-per-job of R189,449 ($11,144).

The typical non-bank lending rate in South Africa is 28% per annum. ACOF’s average rate is Prime+7.62% (approximately 17.87%). We are not the most expensive option for our borrowers , we are among the most affordable, responsible, and supportive non-bank lenders in the market. The return to our noteholders is a by-product of real economic activity, not financial engineering.

When critics describe private credit as a vehicle for ‘garbage loans’ to PE-backed businesses trying to avoid bond market scrutiny, they are describing a US phenomenon. They are not describing a South African non-bank lender writing R5.9m average-ticket loans to a woman-owned logistics company in Johannesburg or a food processing business in the Western Cape.

Conclusion: Differentiation Is Structural, Not Rhetorical

The private credit industry deserves scrutiny. The DOJ, the SEC, the Federal Reserve Bank of Boston, and some of the most respected names in global fixed income are right to raise concerns about a $3.4 trillion market that has grown rapidly in an environment of easy money, weak covenants, and opaque reporting.

But investors, analysts and allocators should apply that scrutiny with precision. Not all private credit is the same. A fund that operates on a regulated exchange, discloses its portfolio metrics quarterly on a public news service, measures loans under IFRS 9, secures every loan at 2x, charges no PIK, caps individual loan exposure at R30m, and lends to 44 SMEs creating 2,084 jobs across 21 African industries, that fund has a fundamentally different risk profile from a $5 billion US unitranche vehicle backed by a PE sponsor and marked at par by the originating manager.

The table below summarises these differences across every major criticism levelled at the asset class. We publish it not as marketing, but as accountability — the same reason we publish our SENS announcements.

ACOF’s differentiation is structural. It was built in, not bolted on.