Investment Executives Eye Opportunities in Private Credit amid Growing Popularity and Potential Risks

Australian investment executives overseeing billions of dollars in retirement savings have identified a lucrative opportunity in alternative investments, particularly in the private credit market. With banks scaling back on corporate lending, super funds are turning to private credit for higher returns and less volatility.

At a recent financial symposium in Melbourne, UniSuper’s CIO John Pearce described private credit as the “flavour of the month,” citing attractive spreads in the European market. However, he cautioned that these opportunities may not last forever, emphasizing the need for appropriate rewards when taking on illiquid assets.

HESTA CIO Sonya Sawtell-Rickson echoed Pearce’s sentiments, emphasizing the importance of understanding the risk spectrum in private credit investments. With strong competition among various asset classes, super funds are carefully evaluating the potential for long-term returns in private credit.

Despite concerns about illiquidity, TelstraSuper’s Graeme Miller believes that illiquid assets could play a significant role in superannuation portfolios, providing sustainable income for retirees. However, he stressed the need to be appropriately rewarded for taking on illiquidity risk.

While private credit is experiencing rapid growth globally, the IMF has raised concerns about potential systemic risks associated with its fast expansion. With limited oversight, the IMF warns of the potential for defaults and liquidity strains in severe downturns.

In Australia, private credit is seen as a vital source of funding for companies and projects, particularly in the absence of a robust bond market. As regulators focus on reducing systemic risks in financial markets, non-bank lenders like private credit providers are expected to play a crucial role in supporting economic growth.

Overall, the growing popularity of private credit presents both opportunities and challenges for Australian investors, who must carefully assess the risks and rewards associated with this alternative asset class.