The Case for Australian Private Credit

Singer song writer Paul Kelly’s timeless “From little things, big things grow” neatly sums up the current directions of the Australian Private Credit Market.

Australian real estate private credit is benefitting from long term structural tailwinds supported by strong domestic economic fundamentals and the ongoing withdrawal of major banks from the commercial real estate lending market. This perfect storm is converging to create an estimated $100 billion liquidity gap over the next decade.

The coming liquidity chasm is occurring at a time when the Australian economy is rotating out of a period of low interest rates, and steady economic growth, into a new era of greater volatility and higher interest rates.

Against a “higher for longer” economic backdrop, incorporating private credit strategies into a diversified portfolio will be critical. Real estate private credit is especially compelling, as it offers higher, risk adjusted returns compared to equity, shorter investment tenure and access to cashflow yield through the holding period.

Our fundamental belief as a house is that growing shortfall in credit liquidity, and the ongoing resilience of the Australian real estate market, will create a positive demand/supply dynamic that will deliver higher overall returns than equity investments in the near to medium term. Reliable and experienced lenders, that actively manage their loan books, will generate a significant investment edge from this environment over the near to medium term.

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