Opportunities in Global Private Credit

As bond markets adjust to a world of moderating inflation and falling policy rates, yields on traditional fixed income and cash holdings are beginning to decline. For investors seeking more resilient sources of income, global private credit has become an increasingly attractive alternative.

Private credit rose to prominence after the Global Financial Crisis, when regulatory reforms made it more difficult for banks to lend to small- and medium-sized enterprises. In response, private lenders began filling this gap, offering tailored financing solutions to businesses in exchange for higher interest rates and stronger covenants. Investors in private credit benefit not only from this yield premium but also from the ability to access bespoke lending markets that remain largely unavailable through public channels.

Today, as listed credit spreads remain tight and bond duration risk rises, the illiquidity premium offered by private credit, often several percentage points above public high-yield markets, can meaningfully enhance portfolio income. At the same time, falling interest rates on cash and term deposits are beginning to erode the appeal of sitting in short-duration assets, especially for investors with medium- to long-term income needs.

While domestic private credit options have expanded in recent years, much of the Australian market remains tied to property lending—particularly residential and development finance. Given the high concentration of household wealth already in real estate, further exposure to this segment may compound sector-specific risks. By contrast, the global private credit market offers far greater sectoral and geographic diversification, along with access to higher-quality borrowers and more robust underwriting standards.

Importantly, many global managers operate at a significantly larger scale than their domestic counterparts. They benefit from deeper origination networks, broader deal flow, and more extensive resources to conduct due diligence and manage risk. These attributes help drive better risk-adjusted returns and stronger capital preservation through credit cycles.

Within private credit, we see two core strategies as particularly compelling:

• Direct Lending, which involves providing senior secured loans to mid-sized businesses that fall below investment grade. These loans often feature strong structural protections, regular income payments, and bullet repayments of principal at maturity—making them a natural fit for income-seeking investors.
• Asset-Based Finance (ABF), which involves lending secured against tangible or contractual assets such as receivables, inventory, or property. These loans typically amortise over time, reducing credit risk and offering a smoother, more predictable income stream with solid collateral backing.

Why Manager Selection Matters

While the potential benefits of private credit are substantial, investors must remain mindful of the risks. These include lower liquidity, limited transparency, and the need for specialised credit expertise. For this reason, manager selection is paramount. We prioritise those with scale, deep underwriting discipline, and strong experience in managing borrower stress and recovering capital where needed.

In the context of declining returns on cash and increased volatility in listed markets, global private credit may provide an opportunity to secure higher, more stable income while enhancing portfolio diversification. We continue to identify opportunities across Direct Lending and Asset-Based Finance strategies that can help investors meet their income and capital stability objectives in the years ahead.