INTHEBLACK November 2025 - Magazine - Page 36
F E AT U R E
“Equity prices are high. The Australian share market is making
a number more like 10 per cent per annum … and so private
credit has come to the fore, because it promises something
like eight to 12 per cent, and it can compete with equities.”
MICHAEL BLOCK FCPA, BELLMONT SECURITIES
capital market is seeing wider participation
from retail investors, but the recent growth
in private credit in particular has triggered
concerns of elevated risk. The International
Monetary Fund has pointed to the global
market’s limited regulatory oversight, while
the Australian Securities and Investments
Commission (ASIC) aims to test whether
investment offers comply with existing
domestic laws.
What does the growth in private capital
mean for investors? And are the risk
warnings warranted?
WHEN SUPPLY MEETS DEMAND
The US accounts for 54 per cent of all private
capital fund assets under management,
and Europe and Asia each represent about
20 per cent. The US also dominates private
credit, accounting for around 70 per cent
of global private credit raised since 2008.
The Asia Pacific region has seen
remarkable growth in private credit, with
data from Prequin showing assets under
management rose from US$15.4 billion
(A$23.6 billion) in 2014 to US$92.9 billion
(A$142.5 billion) by September 2023.
In Australia, estimations vary depending
on definitions and data sources. Reserve
Bank of Australia data, for example, puts the
private credit market at around A$40 billion.
Research from KeyInvest suggests a much
higher figure.
“Lending by banks has reduced since the
global financial crisis and the size of private
credit from our research has exceeded the
A$220 billion mark in Australia, and that’s
both commercial-oriented private lending
and consumer-oriented private lending,”
says Craig Brooke, CEO of KeyInvest.
On the borrowing side, mid-sized
companies and commercial real estate
represent the primary base. Joey Mouracadeh,
senior investment director at Stanford
Brown, says access to finance is a key benefit.
36 INTHEBLACK November 2025
“There’s also been potential for banks to
lend to more traditional borrowers, such as
residential mortgage borrowers and more
established businesses that might borrow with
predictable cash flows, as opposed to startup
businesses and growth businesses where there
might be less to hold on to from a security
perspective or a cash-flow perspective.”
Gordon Morrison, partner at McGrathNicol,
says borrowers also value the flexibility of
private credit.
“If a business is in growth mode and needs
the proceeds for acquisition or to invest
in their business, then the heavy amortisation
of a bank loan takes cash away from growth,”
he says. “Private lenders are often more
flexible on maturity and amortisation,
they may say that you can have a
three- to six-year loan with minimal
amortisation until maturity, or in some
circumstances even with capitalising interest.”
On the investor side, institutional pools
of capital such as superannuation funds
are outgrowing equities and other conventional
asset classes in Australia. Performance tests
under the federal government’s Your Future,
Your Super (YFYS) reforms, which came into
effect on 1 July 2021, have also intensified
their interest in private credit.
In a recent INTHEBLACK podcast
episode on the rise of private credit,
Michael Block FCPA, chief investment
officer at boutique investment manager
Bellmont Securities, says private credit
“that might earn anywhere between
10 and 15 per cent per annum” is typically
benchmarked against investment-grade
credit. “Therefore, an easy way for every
superannuation fund to beat this benchmark
is to allocate five to 10 per cent of its money
to private credit.” Block notes that retail
investors in Australia previously viewed
private credit as too niche, with private
equity the favoured sector in the alternative
sleeve of portfolios.
