Private debt

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.

There are three things that an Australian private credit provider should be focussed on, and capital preservation is the “absolute number one”, according to Craig Brooke from KeyInvest.

Proper valuations are crucial to the transparency and stability of the private credit market, but the valuations that investors rely on are often just a story – and not the whole story either.

The respected property and investment research agency has given out its second-highest rating to Alceon’s property-based Debt Income Fund, which serves to highlight just how well the private debt sector can perform if done right.

2023 may have had its challenges, but the cream of the private credit crop still managed to write plenty of loans. As inflation cools, the outlook for non-bank lenders in the commercial real estate sector, especially, is encouraging.

A higher for longer interest rate environment and likely default cycle in high yield means investment grade credit is once again in the hot seat.

Spurred by the speed and flexibility of private credit, developers are eschewing banks in favour of trusted non-bank lenders. The lending market’s evolution is good news for housing in Australia.