Australia’s private credit market is growing at more than 20 per cent a year and attracting a range of new participants.
Morgan Stanley estimates that the Australian private credit market grew by 21 per cent to A$133 billion last year.
In a presentation at the Morgan Stanley Australia Summit yesterday, it said funding provided by managed investment schemes, superannuation funds, insurance companies, sovereign wealth funds and family offices is worth about 11 per cent of total Australian corporate and business lending – up from 5 per cent five years ago.
Morgan Stanley head of investment management Australia and New Zealand, Daniel Vanden Boom, said the private credit market in the US and Europe is growing faster and accounts for a higher share of corporate and business lending. The Australian market may be heading in the same direction.
Aware Super established a direct lending team in 2018. Credit accounts for 5 per cent of the fund’s $150 billion of assets, although the majority of that is through external managers at this stage.
Speaking at the summit, Aware Super portfolio manager Mike Cowell said the credit portfolio produces steady income with low volatility. Since aware Super established its own team, direct lending has been the fastest growing area of its credit investing.
Cowell said he sees a lot of new players coming into the market, which is providing greater depth and diversity of funding sources.
He said there was a limit to how much a super fund could commit to illiquid corporate loans, given the need for liquidity to allow fund members to switch investment options at short notice.
Jason Dyki, the managing director of Brookfield Capital Markets and Treasury Group, said that unlike capital markets in the US and Europe, where banks have ceded the corporate lending market to private credit providers, Australian banks are fighting to hold their share.
“Borrowers have established relationships with the banks. While some look to diversify, other prefer to maintain those relationships.”
He said Brookfield considers a range of local and overseas options when it borrows. While it prefers to borrow to fund assets in local currencies, there are some shortcomings with the local markets.
It is hard to secure funding with long tenors here are funding costs tend to be higher.
“It’s one of our frustrations that we can buy commercial real estate, an asset with a 70 or 80 year life, have tenants on leases as long as 20 years and be offered three-year funding. We would like to see that change.”