Investors look to private credit to shore up volatile portfolios

Private credit is emerging as a popular choice for investors seeking to diversify their portfolios and gain high and compelling yields without the volatility of equity and capital markets.

As Australia’s population ages and a growing number of investors seek to preserve their capital and earn a sustainable return, interest has grown for private credit-managed funds – a market traditionally dominated by institutions.  

Offering returns well above the cash rate over a fixed term, private credit is attracting investors who are conservative in their risk appetite, or simply looking to balance out the more turbulent buckets in their portfolios. 

Private credit offers predictable returns over a fixed period, with funds offering a range of investment terms and risk profiles, along with retail and wholesale options for investors with differing capital levels. 

The private credit market in Australia has seen rapid growth in recent years, expanding by 7% to $188 billion of assets under management in 2023, according to an annual report on the private credit landscape by accounting firm EY. Business-related loans made up $112 billion of the total, with $76 billion going to commercial real estate. 

This increase was moderate compared to the 32% growth seen the year prior. Still, with private credit in Australia representing only 12% of total business-related loans and estimates putting the private credit market globally at up to US$1.6 trillion, there remains room for further domestic growth. 

One company operating in this landscape is the Australian-owned Maxiron Group. Its investment arms offer private, wholesale and retail options depending on investors’ needs. Maxiron’s lending arm, Maxiron Capital, provides commercial loans and bridging finance. It advertises quick approval and settlement processes, as well as flexible financing options, servicing borrowers across a range of sectors and geographies. 

“We work closely with each borrower to create customised loan terms that fit their unique goals and financial situation,” said Iman Asadi, Maxiron’s director of lending. “Maxiron also strives to offer competitive interest rates by balancing affordability with proper risk management,” he said. 

Maxiron’s pooled mortgage investment brings together contributions from multiple investors to provide loans secured by Australian properties with a predictable rate of return for a fixed term, Asadi says. 

“By avoiding construction or development loans and focusing on low-risk existing property mortgages, this conservative strategy further reduces the risk of default, providing investors with a steady income stream,” Asadi says. 

Carefully managing risk

Private credit appeals to borrowers by offering easier access to loans that may be harder to obtain from traditional lenders such as banks. Regulatory pressure and economic uncertainty have led banks to tighten their lending criteria in recent years, says Asadi – especially to commercial investors and small and medium-sized businesses. 

Private credit can enable property developers to complete housing projects more quickly, such as by funding land purchases. It can be tailored to differing needs, such as to support affordable housing projects. It can also help small or medium business owners with strong business models and clear goals to fund business expansion. 

“The Australian government and regulators are encouraging the growth of private credit, recognising its importance in providing funding solutions, particularly during tough economic times,” Asadi said. “Private credit markets have shown they can remain strong even when the economy is uncertain.” 

Private lenders like Maxiron manage risk through strong asset backing, careful borrower selection and having a diversity of borrowers from different sectors and geographies. 

Morgan Ng, managing director of Maxiron, said there has been zero capital loss since the inception of the company’s retail fund in 2019. This is despite approving $650 million of funding over the 2022/2023 financial year and $1 billion for the 2023/2024 financial year. 

“All of our investors have been paid on time,” Morgan said. “Geographically, our loans are spread across Australia; we are not tied to a particular state. Our property securities types are diversified with residential, commercial and land, so they are not just a particular type of security. Having that amount of diversification spreads the risk of market volatility and borrowers going into default.” 

Ray Saedi, Maxiron’s head of investor relations, said investors are attracted to the relative security of private credit as an asset-backed investment. It is also flexible with short- and mid-term options, so investors do not have to commit capital for a long period. 

“It offers the potential for regular income focusing on capital preservation,” Saedi says. 

Maxiron’s investments typically bring a return of three to four percentage points higher than the cash rate, Saedi said. “Even when the cash rate was lower, we were still giving one of the highest return rates in  the market.” 

For more information visit www.maxiron.com.au