Private debt

Private credit investing has seen exponential growth in recent years, fueled by structural shifts in financial markets and a growing demand for flexible, non-bank lending solutions. Private credit is no longer a niche – it’s a major force in the market.

The release of a landmark report by corporate and financial regulator the Australian Securities and Investments Commission (ASIC) into the nation’s rapidly expanding private markets – and shrinking public markets – has brought this dichotomy into the spotlight, as indeed it has around the world.

Secondaries now represent a core pillar of many investors’ alternative assets program, according to Coller Capital.

All strategies work – until they don’t. But while private credit may not be everything it’s cracked up to be, the risks need to be weighed with a sense of pragmatism.

Private credit has been crying out for reporting standards that are clear and homogenous, but the industry is so disparate that a solution always seemed far away. That is, until the team at KeyInvest decided to do something about it.

The private markets juggernaut is one that has also thrown up a wealth of data that other players can use to sharpen up due diligence when making their own investment decisions – especially in the growing secondaries market.

Private markets are worth around $14 trillion globally, ASIC believes. It’s not sure, and that uncertainty hints at the wider problem – private markets, and their effect on public ones, is still largely a mystery.

With many economists expecting the Reserve Bank to start cutting interest rates in early 2025, returns on term deposits could feel the pinch. Private credit is an alternative, but those pursuing this investment option will need to do their homework.

Long the bailiwick of institutional investors, private markets secondaries are now trickling down to the wealth space as the market grows and new vehicles expand access.

With traditional equity managers losing the fight against passive product providers, diversification into more specialist classes of asset management may provide a more sustainable path. But that’s a pricey endeavour, and easier said than done.

Pessimists are still trying to shoehorn the “bubble” narrative into the private capital story, but an EY report highlights not only the rise of this burgeoning ‘alternative’ sector, but the reasons it’s likely to keep growing.

The private market sector has grown to the point that it has a thriving secondaries market operating behind it, which puts investors in line to benefit from the twin pillars of risk mitigation and upside return potential.