Global private credit can move from a ‘niche’ asset class to a necessity for Australian investors, as demand for reliable income-producing investments grows due to significant demographic drivers, according to a global credit expert.
The demographic shifts of more retirees and pre-retirees looking for more attractive income returns is happening across the developed world, according to Nehemiah Richardson, CEO of Pengana Credit. “The retirement bulge happening across the developed world is driving a hunger for more diverse sources of fixed income returns, as more investors target investments with a low correlation to traditional equities and bonds.
“That need to add more stability to portfolios, by diversifying sources of fixed income, could see global private credit move from becoming a niche strategy to something considered a necessity.”
For Australian investors, Mr Richardson compared the emergence of global private credit to global equities over the last 25 years. “We all take global equities for granted now, but 25 years ago Australian retail investors couldn’t easily access global equities markets.
“Similar doors are opening to global private credit, combined with structural long-term tailwinds which will see more growth in the sector and hence more investment options.”
Aside from long-term structural changes to the banking system, a desire for unlisted investments with lower volatility has also fuelled global private credit, according to Richardson. “Since the GFC the frequency and amplitude of volatility in markets has only been increasing across world markets.
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“Hence more investors are looking for stability and resilience. The ability to attract an illiquidity premium, without the volatility we are seeing on publicly traded markets, has become more important.
“Within private credit there is a lot of diversification in strategy available, and a very wide set of tools to build resilience.
“There are many protections available. Investing in loans is one of the oldest forms of investment there is, nearly as old as investing in gold. No manager invests without wanting to get the capital back.”
Allocating globally to spread risk is highly relevant to Australian investors, given most opportunities are offshore. “I would argue most local fixed income investments are all correlated to the same risks – that is, the interest rate environment in Australia, the state of housing and the economy at large.
“If we have a big recession in this market there are a lot of correlated risks. You can diversify at the margins, but investors need more, which is where global allocations come in.”
Pengana, in association with Mercer, has launched several different global private credit vehicles, including the TermPlus online fixed-term accounts for retail investors, the listed Pengana Global Private Credit Trust (ASX: PCX), the unlisted wholesale Pengana Diversified Private Credit Fund, and an SMA Fund.
