Last week’s conveniently ‘leaked’ government proposal on its plans to revolutionise retirement income for all Australians has brought retirement back into the headlines. The detail aside, the proposal couldn’t have come soon enough.
For decades, advisers have relied on bonds as the go-to counterweight in a balanced portfolio. But as the correlation between bonds and equities turned positive in 2022–2023, shock ensued; and many investors are rethinking what they thought was a truism.
Global market ‘sways towards private debt’ as SPV usage tipped to soar
Executives and professionals working in private markets believe the sector is set to expand significantly in the near to mid-term, with growth in private debt likely to increase the prevalence of special purpose vehicles (SPVs) being set up to carry loans.
A major new study involving 400 C-suite level executives and senior professionals, conducted by IS business administration and compliance firm Corporation Service Company, (CSC) revealed 46 per cent believe conditions for private markets will improve in the next two to five years, with 29 per cent saying the improvement is either already happening or due to occur in the next year.
The study, which was commissioned among investment professionals in private markets, real estate and infrastructure in Europe, the U.S. and Asia Pacific, found that professional working in the private debt space had the highest degree of confidence that conditions would improve for their sector.
“Our study has found far more optimistic sentiment among senior private markets professionals, following a few years of significant market volatility, which bodes well for the wider investment sector and global economy,” stated Thijs van Ingen, global market leader at CSC Corporate and Legal Solutions. “Private debt professionals were much more optimistic than their peers working in different sectors. This supports the trend we are seeing more generally in the market, which sways towards private debt.”
The news comes after a relatively lean couple of years for private equity, which was buffeted by volatility and challenging market conditions. At the same time, private debt purveyors have begun to take up the lending space vacated by banks, which have become reticent to lend in the inflationary era. As companies continue to eschew listing and taking on the onerous reporting duties that come with it, both private market planks are tipped to recover.
According to CSC, this should also see more SPVs set up by companies looking to externalise risk while taking on loans. But these, too, also have considerable reporting and compliance requirements due to multi-jurisdiction regulation and the need for detailed data.
“SPVs have become increasingly complex, and far more work needs to be done to manage them, particularly when you factor in new regulations and requirements,” noted Delphine Jones, managing director of CSC Client Solutions. “However, the SPV ecosystem has also become relatively inefficient, with a wealth of unnecessary complexity. It is in this environment that outsourcing to specialist SPV administrators is also growing.”
