One Loan Can Hurt. A Hundred Loans Can Help: Diversification in Credit Investing.

One Loan Can Hurt. A Hundred Loans Can Help: Diversification in Credit Investing.

Private credit can provide investors with attractive income, with interest payments typically set out as a contractual obligation between the borrower and lender. However, like any investment that involves lending money, private credit carries the risk that a borrower may experience financial difficulty, repayments may be delayed, or the amount recovered from a loan may be less than expected.

At Remara, diversification is one of the tools we use to manage these risks. We seek to avoid excessive reliance on any one borrower, sponsor, development project, industry, geographic region, asset type or lending structure. A diversified portfolio is designed so that, if one borrower or sector faces difficulty, the impact on the portfolio as a whole may be more limited.

A fundamental principle of Remara’s investment strategy is to limit exposure to individual borrowers or their related entities. Limiting exposure to individual borrowers provides a layer of protection against one-off credit events, it also ensures that if one loan were to face difficulty this would not become a fund level event.

For example, consider a $500 million portfolio with a $5 million loan to one borrower. If that loan were to experience a complete loss before any recoveries, the direct impact would be approximately 1% of the portfolio. The impact would be materially larger if the loan represented $50 million or $100 million of the same portfolio.

Borrower diversification is not only about counting the number of separate loans in a portfolio. Several loans may appear to be independent because they are made to different legal entities, secured against different properties or connected with different operating businesses. However, those investments may still share a common sponsor, owner, funding source, industry or economic driver.

Geographic diversification is an important factor. Property values, population growth, construction activity, business conditions and employment levels can all affect different areas in different ways. Remara assesses economic conditions and borrower concentrations across different states and regions and can adjust lending activity accordingly.

For example, if economic conditions in Victoria weaken, we may reduce our exposure to that state and direct capital to stronger markets, helping to manage risk and support more consistent returns over time.

Diversification across different types of lending

Different types of lending are influenced by different economic factors. A diversified credit portfolio can include exposure to a range of borrower groups, asset types and lending structures. This ensures that we’ve diversified not only the borrower base, but also the unique economic risks facing each group

At Remara, this may include investments across areas such as:

This ensures that we’ve diversified not only the borrower base, but also the unique economic risks facing each group. Construction finance, for example, may be influenced by property values, construction costs, project completion, the availability of buyers and the borrower’s ability to manage development risk. Whereas floorplan finance may be more closely linked to dealer performance, inventory turnover, the value of the financed stock and consumer demand.

Direct lending and securitised investments

Remara invests across both direct loans and securitised credit investments. While these investments can offer similar income yields, they provide exposure to different sources of risk and return.

Direct lending means providing a loan directly to a borrower.

This may allow Remara to have greater involvement in how the loan is structured, including the security supporting the loan, financial covenants, repayment terms and ongoing monitoring requirements.

Securitised credit involves investing in securities backed by a pool of underlying loans or receivables. For example, a securitised investment may provide exposure to a large pool of mortgages, consumer loans, business loans or contractual payment streams. Rather than relying on a single borrower, the investment is supported by payments from many underlying borrowers or assets.

Importantly, securitised investments allow all our Remara’s funds, regardless of size, to access these diversified portfolios, further enhancing risk management and investment opportunities for our investors.

Why sector diversification matters – the US experience

A recent example of the importance of borrower diversification can be seen in the US private credit market, where a significant proportion of lending has been concentrated in technology and software companies. The emergence of AI disruption concerns in early 2026 triggered a sharp repricing of the software sector, with the S&P 500 Software & Services Index falling by around 20%.

Funds with large exposure to software borrowers, in some cases approaching one-third of portfolio assets, came under increased scrutiny from investors. Several private credit funds experienced redemption requests well above normal levels, with certain vehicles receiving requests of more than 20% of assets and introducing quarterly redemption limits of 5% to manage liquidity pressures.

The broader lesson for investors is that diversification is about more than simply holding many loans. A well-diversified portfolio spreads exposure across different industries, asset types and economic drivers, reducing the impact that any single sector or investment theme can have on overall portfolio performance.

In credit investing, diversification is not about avoiding every loss. It is about ensuring that no single loss has the power to determine the outcome of the entire portfolio. Our objective is to not just own more loans, it is to own loans that are exposed to different risks.