In a recent ION Influencers fireside chat that provided a on-the-ground view of Australia’s burgeoning private credit market, Joe Millward, Founding Partner of Epsilon Direct Lending, mapped out the unique dynamics, challenges, and opportunities shaping the sector.

With a background spanning the UK’s early credit markets and Australia’s major banks, Millward offered a clear-eyed perspective on why mid-market lending is thriving, how talent is shifting, and what the future holds for fund managers Down Under.

Here are the key topics and takeaways for investors and operators.

The Australian Edge: Efficiency Over Price in a Bank-Dominated Market

Millward positioned Epsilon not as a disruptor, but as a pragmatic competitor to Australia’s “Big Four” banks. Their sustainable edge is built on three pillars:

1. Speed and Certainty: In time-sensitive M&A financing, Epsilon competes on efficiency of decision-making. As owners and the investment committee, they provide direct access and certainty—a stark contrast to the segmented, often opaque credit teams within major banks.

2. Enduring Sponsor Relationships: The firm has built deep trust with virtually every mid-market private equity house in Australia, creating a reliable “relationship hedge” for deal flow.

3. Sector Specialization by Omission: Epsilon defines itself by what it doesn’t do—avoiding property, resources, and agriculture. Instead, it focuses on “boring old school” sectors like healthcare, B2B services, and staple manufacturing, lending $10M-$50M for sponsor-backed buyouts and growth.

The Untapped Frontier: Educating the “Sponsor-Less” Mid-Market

A significant growth opportunity lies beyond private equity. Millward identified a major gap: privately owned, founder-led businesses are poorly served by banks for growth and acquisition financing.

• The Awareness Challenge: While sponsor deals are well-covered by networks, there’s a massive “education job” to be done directly with mid-market corporate Australia. Business owners remain largely unaware of the private credit value proposition amidst the overwhelming advertising presence of the major banks.

• The “Time” Factor: Millward believes acceptance will grow through osmosis—as business owners and advisors share positive experiences with the speed and direct access private credit lenders offer, especially compared to impersonal bank workout teams during stress.

Talent Paradox: Senior Influx vs. Junior Shortage

Epsilon’s current hiring experience reveals a fascinating talent market dichotomy:

• Senior Talent is Flocking: “Incredible demand from senior practitioners who just want out of the banks” is making senior hires easier than anticipated.

• Junior Talent is Scarce: Contrary to expectations, attracting graduates from accountancy and banking programs has been challenging. Millward pins this on a lack of awareness about private credit as a career path. He believes time and industry maturation will unlock this pipeline.

The Inevitable Consolidation: Moving Towards a “Normal” Industry

Millward sees Australia’s fund management industry evolving towards a more typical M&A cycle.

• The Barbell Effect: The market currently features a few very large managers (including global players and super funds) and many small boutiques.

• Drivers of M&A: Consolidation will be driven by investor demand for better practices, regulatory (ASIC) pressure, and the need for scale. He also notes public equity managers are looking to diversify into private credit amid fee compression in their core business.

• Fee Compression: An Offshore Phenomenon: While intense in the US and Europe due to capital saturation, Millward believes fees in Australia are already “pretty tight” due to the price sensitivity of dominant super fund investors.

Key Takeaways for the Australian Market:

• For LPs: Sophisticated allocators are constructing portfolios with a mix of large/small, onshore/offshore, and sector-specialized managers to capture both beta and alpha. Transparency is increasing but will likely stop short of full US BDC-style name disclosure due to market size.

• For GPs: The winning edge isn’t innovation or price, but executional excellence, relationship depth, and sector focus. The path to scale for small managers may soon require consolidation to reach the institutional threshold.

• On Secondaries: The prevalence of open-ended fund structures in Australia creates a natural barrier to a deep secondary market for private credit, making it more situational (e.g., during gating events) than a permanent fixture.

• The Bottom Line: Australia’s private credit market is maturing rapidly, moving from a niche alternative to a core component of corporate finance. Success hinges on operational discipline, trust-based relationships, and a patient focus on educating the vast, underserved middle market.