Nehemiah Richardson,

Diversification in private credit investing is becoming more important for income investors, due to unpredictable dynamics in financial markets coupled with geopolitical uncertainty, according to a private credit expert.

The depth and breadth of global private credit provides the grounds for a highly diversified approach which can spread risk and manage liquidity, according to Nehemiah Richardson, CEO of Pengana Credit. “Diversification is becoming a bigger factor as we see unpredictable behaviour in financial markets, including swings in bonds and currency markets, and economies moving at different speeds.

“Having some exposure to quality defensive positions in global private credit is arguably more important in this environment, especially when you consider some of the geopolitical uncertainty around the globe.

“Only global markets provide the ability to truly diversify both statistically and structurally, spreading investments across industry, geography, and strategy.

“When you consider these opportunities are unlisted, with lower liquidity, diversification is even more essential.”

Richardson said depth of quality is key when measuring the effectiveness of diversified exposure. “There is great potential to diversify with quality because private credit is a dominant form of lending to mid-market corporates in the USA and Europe.

“For investors, we believe the most attractive segment of the market provides access to bilateral loans with enforceable protections, which are held to maturity and do not compete with traded private credit.”

Richardson said the local market does not have the capacity for true diversification across geography, strategy and industry. “Global private credit provides the opportunity for statistical and structural diversification across a number of senior secured direct lending managers with portfolios ranging from 200 to over 1,000 individual loans.

“Global private credit is not constrained in its ability to deploy capital in the same way that the local private credit market can be, where the opportunity is limited to a narrower set of opportunities, particularly commercial real estate.”

And growth in the global private credit market continues unabated, with Preqin forecasting it will be worth $2.7 trillion globally by 2027. “We expect growth to continue as structural supply and demand dynamics continue to work in private credit’s favour.

“It has been driven by a structural withdrawal of capital as regulations have prevented banks from holding too many long term assets with short-term liabilities.”

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.

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Nehemiah Richardson,

Two of Pengana Credit’s global private credit investment vehicles have been given a Recommended rating by Lonsec, while the company’s innovative online term accounts, TermPlus, have received an initial Investment Grade rating.

The listed Pengana Global Private Credit Trust (ASX: PCX) was upgraded to Recommended by Lonsec. PCX is the most diversified global private credit vehicle listed on the ASX, and commenced trading in June 2024.

The wholesale Pengana Diversified Private Credit Fund was launched in late 2023 and has been given an initial rating of Recommended by Lonsec.

The retail consumer online term account products, TermPlus, which has redefined ease-of-access to global private credit, received an initial rating of Investment Grade for each of the one, two, and five-year terms on offer.

In its commentary on Pengana’s global private credit vehicles, Lonsec said they employ “…a global multi-manager strategy, offering broad diversification across individual borrowers, managers, and investment strategies helping to mitigate the default risk typically associated with private debt portfolios.”

Lonsec also said: “Pengana benefits from the strength of Mercer’s manager research capabilities, alongside significant scale, experience, and global resources. Mercer’s global Private Debt team brings over 20 years of ‘on-the ground’ presence in key regions.”*

Nehemiah Richardson, CEO of Pengana Credit, said the global private credit market is built on strong fundamentals and looks poised to grow. “Global private credit growth has been driven by a structural withdrawal of capital as regulations have prevented banks from holding too many long term assets with short-term liabilities.

“Hence private credit is playing an important role in the USA and European economies as private lenders fill in the vacuum left by the banks.

“For investors, this is providing a market with the depth and breadth of diversification and quality, which delivers income returns.”

The global private credit market is forecast to be worth $2.7 trillion globally by 2027, according to Preqin. “Structural supply and demand dynamics continue to work in private credit’s favour. As the industry grows it’s important to partner with top quartile managers who have proven experience across several cycles”, Richardson said.

* The ratings published on 11/2025 for Pengana Global Private Credit Trust and 11/2025 for Pengana Diversified Private Credit Fund and 11/2025 for TermPlus 5-Year Term, TermPlus 2-Year Term, and TermPlus 1-Year Term, are issued by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research). Ratings are general advice only and have been prepared without taking account of investors’ objectives, financial situation or needs. Consider your personal circumstances, read the product disclosure statement and seek independent financial advice before investing. The ratings are not a recommendation to purchase, sell or hold any product. Past performance information is not indicative of future performance. Ratings are subject to change without notice and Lonsec Research assumes no obligation to update. Lonsec Research uses objective criteria and receives a fee from the Fund Manager. Visit lonsec.com.au for ratings information and to access the full report. © 2025 Lonsec. All rights reserved.

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Nehemiah Richardson,

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.

“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.”

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Nehemiah Richardson,

Investor demand for global private credit is set to continue on the potential for interest rates to remain ‘higher for longer’, and increased signs of corporate activity in key markets, according to a private credit specialist.

Private lending should remain competitive even if interest rates in the USA and Europe ease further, said Nehemiah Richardson, CEO of Pengana Credit. “There is a broad consensus that the US and European central banks will ease, but at a gradual pace and with the likelihood that rates will be higher for longer.

“Even if yields come down they will remain attractive if rates stabilise at a higher for longer level.

“Some lowering of interest rates can also bring positives for global private credit. For example, the credit quality of borrowers will improve as lower base rates reduces their interest payment burdens.”

Mr Richardson said the underlying structural change which has seen private credit explode globally since the GFC should continue driving growth in the asset class. “Global private credit is not wholly dependent on interest rate movements. It is a profound structural change in banking post-GFC, which is why private credit kept growing while base rates were at zero.

“Banking in the USA and Europe is very different from our experience in Australia, as locally 90 per cent of corporate lending happens via the major banks – in the USA and Europe the vast majority of mid-market corporate lending is funded by private credit managers.”

Richardson said there are already signs of a pick-up in corporate activity in the USA and Europe. “There currently seems to be an appetite to invest in growth. We’re seeing mergers and acquisitions starting to gain momentum, along with organic growth.

“It’s a demonstrable increase in activity.”

Yet with substantial uncertainty around the globe, Richardson said manager selection and the quality of underlying loans remain paramount. “Global and economic uncertainty puts the onus on robust manager selection, and wide diversification across the best private credit opportunities.”

Pengana has partnered with Mercer to launch several different global private credit vehicles, including the TermPlus online 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.

Globally, the private credit industry has surged since the GFC, having nearly tripled in value over the last 10 years to a US$1.5 trillion market size at the start of 2024. Some forecasts suggest the market could expand to US$2.8 trillion by 2028, with fund manager BlackRock predicting it will grow to US$3.5 trillion.

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Nehemiah Richardson

Pengana Capital Group continues to grow its non-institutional private credit division, Pengana Credit, announcing the launch of a unique separately managed account fund (SMA Fund) solution as part of a recent shareholder update.

According to Pengana, the SMA Fund is the only diversified global private credit product in the Australian SMA market. Its first client has been onboarded, and Pengana has secured initial platform access on the North platform.

Nehemiah Richardson, CEO of Pengana Credit, said strong inflows were expected over the coming quarters. “The SMA Fund adds yet another non-institutional private credit investment option to meet the growing demand for global private credit among Australian investors.

“Outside of Australia, global private credit is arguably the most highly sought after asset class. Yet there has been a severe shortage of applicable products available in the Australian non-institutional investment market.”

Pengana has sought to establish a market leading position in global private credit by partnering with Mercer and launching several different vehicles, including the TermPlus online term accounts for retail investors, the listed Pengana Global Private Credit Trust (ASX: PCX), and the unlisted wholesale Pengana Diversified Private Credit Fund.

Globally, the private credit industry has surged since the GFC, having nearly tripled in value over the last 10 years to a US$1.5 trillion market size at the start of 2024. Some forecasts suggest the market could expand to US$2.8 trillion by 2028, with fund manager BlackRock predicting it will grow to US$3.5 trillion.

Mr Richardson said the new investment vehicles introduced a radical level of global private credit access for Australian investors. “Even high net worth investors previously struggled to gain meaningful exposure, but now any Australian retail investor can access the same diversification and returns enjoyed by institutional investors.”

But he said investors needed to be selective in their exposures as the sector becomes more hyped. “It’s important to recognise that not all private credit investment are the same.

“Geography plays a big role as there are a number of differences between global private credit investments, and local Australian private credit.

“Global private credit is a huge market playing a major role in the US economy and many European economies. Australian private credit is mostly in areas where banks do not have credit risk appetite, for example commercial property.

“The other major consideration is the quality and track record of the underlying managers, and whether they have managed private credit investments through different cycles.”

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Nehemiah Richardson,

A more clear distinction between global private credit and Australian private credit would help investors and advisors ensure they are not comparing ‘apples with oranges’ when considering an allocation to this asset class, according to a private credit expert.

There are vastly different risk and return profiles between the local and international private credit markets, says Nehemiah Richardson, CEO of Pengana Credit, a division of Pengana Capital Group. “Comparing global private credit with local private credit is like comparing apples and oranges. Bout both local and global private credit are often lumped together.

“In reality the asset class is far more nuanced, and this is most apparent when you consider the banking sector in Australia in comparison to the USA and Europe.

“In Australia, 90 per cent of corporate lending is done by the major banks, with only an approximate 10 per cent of lending by private credit providers.

“In the USA and Europe it’s almost the exact opposite: approximately 84 per cent of corporate lending is done by private credit providers, with around 16 per cent done by the banks.”

This creates different risk profiles between local and global private credit, he said. “In Australia most private credit loans are in commercial property and subordinated positions in asset-backed structured finance vehicles, where banks don’t have the risk appetite, and which are yet to be cycle tested.

“Yet in the USA and Europe private credit plays a major role in their economies. There is a massive market of lending available including relatively lower risk positions in bilateral loans to quality companies.”

Richardson said the historical loss rate for global private credit direct lending strategies since 2005, a period which includes the GFC, is 1.03 per cent annualised (source: Cliffwater). “For a well-constructed portfolio the loss rate can be miniscule, for example the Pengana Mercer global private credit direct lending funds demonstrate a weighted average loss rate of less than 0.2 per cent per annum.

“Unfortunately average loss rates for the Australian private credit sector are not widely available, another reason why investors need to be informed before they invest.”

Pengana Credit runs several different investment strategies backed by global private credit, including its online term accounts, TermPlus, the listed Pengana Global Private Credit trust (ASX: PCX), and the wholesale Pengana Diversified Private Credit Fund.

Globally, the private credit industry has surged since the GFC, having nearly tripled in value over the last 10 years to a US$1.5 trillion market size at the start of 2024. Some forecasts suggest the market could expand to US$2.8 trillion by 2028, with fund manager BlackRock predicting it will grow to US$3.5 trillion.

Richardson said managers and investors need to stay disciplined as the sector grows. “It’s likely we’ll see more variability in complexity and risk profile as more product enters the market. There will be longer term benefits in sticking with the quality end of private credit.”

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Nehemiah Richardson,

Demand for retail investment access to global private credit has been demonstrated by a strong IPO raising for the Pengana Global Private Credit Trust (ASX: PCX), according to Pengana Credit CEO, Nehemiah Richardson, as the Trust reported a circa $160 million raising.

The PCX offer, a listed investment trust providing unprecedented access to global private credit investments, closed on 6 June 2024, and is preparing to list on the ASX on 21 June 2024.

Global private credit investments for PCX will be selected by Pengana together with Mercer, for a highly diversified investment vehicle aiming to deliver global-private-credit-like returns, which includes a consistent income via a 7% p.a. cash distribution yield, net of any fees, paid monthly, plus some capital growth.

Pengana Credit CEO, Nehemiah Richardson, said advisors and investors are drawn to the returns profile and diversification benefits of global private credit. “We are delighted to have raised ~$160 million and are proud to bring something completely new to market, opening doors to global private credit via a listed investment trust.

“Until now this asset class has been extremely difficult for advisors and investors to access, and they have been missing out on significant diversification and returns benefits. We are pleased to be changing all that through investment vehicles such as PCX.”

PCX will provide access to a highly diversified portfolio across the US and Europe, investing in over 2,000 individual loans across 19 underlying managers who are curated and assessed by Mercer.

The trust also introduces an innovation to listed investment trusts, in the form of a a quarterly off-market buyback-at-NAV mechanism, which is designed to reduce the potential for trading at large discounts to NAV. “The quarterly off-market buyback gives investors an alternate option for selling their PCX units, against the discount-to-NAV issue which has been a problem for some listed investment trusts.

“We worked closely with the ASX on the buyback structure as it’s important there is confidence in the trading conditions of the trust.”

The PCX listed investment trust is part of a broader push by Pengana to make global private credit more available to Australian retail investors, which most recently announced the launch of TermPlus – an innovative approach to delivering best-of-breed online term accounts.

TermPlus opens the world of global private credit returns to retail investors with as little as $2,000 to invest.

“We’re driven to give investors more opportunities to benefit from global private credit, which has been one of the world’s fastest growing asset classes over the last 15 years”, Mr Richardson concluded.

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Nehemiah Richardson,

Unparalleled global private credit investment vehicle, the Pengana Global Private Credit Trust (ASX: PCX), has exceeded its minimum offer threshold of $100 million early in its initial public offer phase, via applications and commitments.

The PCX IPO opened on 20 May 2024, and is limited to $250 million. The offer is expected to close on 6 June 2024, unless fully allocated prior.

According to Pengana Credit CEO, Nehemiah Richardson. “The demand reflects strong advisor and investor interest in global private credit given its portfolio diversification benefits. There is clearly demand for the attractive yields, stable income, low volatility and capital preservation characteristics.^[1]

“Until now retail investors have faced a number of issues accessing this asset class which PCX is designed to address, including providing a single access point to an already established, highly diversified portfolio of global private credit investments.”

PCX will be invested in over 2,000 individual loans across 19 underlying managers who are curated and assessed by Mercer, providing access to a highly diversified portfolio across the US and Europe. Mercer, one of the world’s largest investment consultants to institutional investors, constructs the portfolio in its role as investment consultant to the Trust.

PCX is targeting the attractive returns synonymous with the global private credit sector, which will also include a 7% annual cash distribution target yield^[3], paid monthly to investors, from the first month after listing^[3].

Aside from Pengana’s objective to deliver unparalleled access to global private credit, an element of capital accumulation, and a monthly income, Pengana is introducing a new approach to listed investment trusts via a quarterly off-market buyback offer. PCX investors will have a quarterly opportunity to make redemptions at NAV^[2].

This will give investors an alternate option for selling their PCX units^[2], and is intended to give investors a better investment outcome over traditional listed investment company (“LIC”) and listed investment trust (“LIT”) structures by reducing the propensity for trading on-market to occur at large discounts to the NAV per Unit.

Russel Pillemer, Chief Executive Officer of PCG said: “The innovative quarterly buyback mechanism is testament to our group’s commitment to developing, and delivering, best-of-breed solutions that are focussed on meeting the needs of our Australian investors.”

A Priority Offer has been extended to investors in all of PCG’s funds as well as shareholders in PCG’s listed vehicles: Pengana International Equities Limited (ASX: PIA), Pengana Capital Group (ASX: PCG) and Pengana Private Equity Trust (ASX: PE1).

———-

Notes:
[1] Past performance is not a reliable indicator of past performance. The value of investments can go up and down. Investments in alternatives involve substantial risk, including strategy risks, manager risks, market risks, and structural/operational risks, and may result in the possible loss of your entire investment. In respect of return, volatility and correlations: returns in USD over a 10 year period from 1 July 2013 to 30 June 2023. Sources: S&P (S&P 500 Total Return Index), Bloomberg (Bloomberg US Corporate Total Return Value Unhedged USD), Burgiss (Burgiss – Private Debt (North America)), and Thomson Reuters Datastream (ICE BofAML US High Yield Master II, S&P Leveraged Loan). S&P, Bloomberg, Burgiss and Thomson Reuters have not provided consent to the inclusion of statements utilising their data. No assurance can be given that any investment will achieve its objectives or avoid losses. Past performance is not necessarily a guide to future performance.
[2] The Responsible Entity intends to make an offer to buy-back 5% of the issued capital of PCX at the Buy-Back Price each calendar quarter on an off-market basis, subject to the Responsible Entity determining such is in the best interest of unitholders. The Buy-Back Price is equal to the sum of (i) the NAV per unit as at the Buy-Back Pricing Date; and (ii) the amounts of distributions that the unitholder would have been entitled to if the unit was not cancelled from the Buy-Back Cancellation of Units Date up to the Buy-Back Payment Date. This off-market buy-back mechanism is intended to provide investors with an alternate option to sell their holdings. It is also intended to give investors a better investment outcome over traditional listed investment company (“LIC”) and listed investment trust (“LIT”) structures by reducing the propensity for trading on-market to occur at large discounts to the NAV per unit. The first round of quarterly buy-back post the completion of the IPO will have a Buy-Back Pricing Date of on or around 31 December 2024. Subject to the acceptance of a buy-back timetable which is acceptable to the ASX, a Buy-Back Booklet with details of specific dates for this first buy-back will be made available to unitholders on or around 15 August 2024, with the date required for a unitholder to elect to participate in the buy-back being on or around 20 September 2024. The Responsible Entity intends that each subsequent round of quarterly buy-back after the first round will also have at least one calendar quarter between the date required for a unitholder to elect to participate in the buy-back and its Buy-Back Pricing Date and Buy-Back Payment Date, with specific dates to be made available in future Buy-Back Booklets (subject to the acceptance of the buy-back timetable by the ASX). Please refer to the PDS for an explanation of capitalised defined terms and in particular to section 6.12 for further information in respect of the buy-back proposals and other capital management initiatives.
[3] The target cash distribution yield is an objective target only and may not be achieved. Any shortfall in net income generated may result in a distribution payment made out of capital invested. Future returns are not guaranteed and a loss of principal may occur. Investors should review the Risks summary set out in Section 8 of the PDS. The first distribution is expected to be paid with reference to the period ending on 31 July 2024, with July 2024 being the first full month following the Settlement Date. Past performance is not necessarily a guide to future performance.

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Nehemiah Richardson,

Key highlights

• Pengana is launching a groundbreaking global private credit investment vehicle – in listed form.
• The vehicle aims to generate the strong risk adjusted returns associated with the global private credit asset class, with a high degree of capital protection as well as stable and consistent income, in the form of a targeted 7% p.a. cash distribution, paid on a monthly basis.
• Global private credit’s low correlation to other asset classes will also allow investors to further diversify their portfolios.
• Mercer has been engaged to provide investment advisory services to build a highly diversified, multi-manager, multi-strategy portfolio, made up of more than 2,000 individual underlying loans in the new vehicle.
• Focussed predominantly on loans to mid-market companies in the US and Europe, where increased regulatory requirements post the GFC, and bank failures of 2022, have caused banks to abandon lending. This gap in supply has been filled by global private credit managers and underpins the potential for attractive returns available to investors. Pengana believes this is a structural phenomenon that will carry through the next decade, or more.
• Investors may also benefit from Pengana’s innovative quarterly buyback structure which seeks to solve the issues that have faced some ASX Listed Investment Trusts trading at a discount to net asset value.

Global private credit specialist, Pengana Credit, has announced plans for a unique Listed Investment Trust (LIT), the Pengana Global Private Credit Trust (ASX: PCX), delivering unparalleled access to the highly sought after global private credit asset class which, to date, has been out of reach for most Australian investors.

The Pengana Global Private Credit Trust will seek to generate the strong risk adjusted returns associated with the best of the global private credit sector, with some capital protection, as well as stable and consistent income in the form of a 7% p.a. cash distribution yield, net of any fees, paid monthly. Investments will be selected by Pengana’s specialist private credit team, alongside specialist investment advisory input from global investments leader, Mercer, with the aim of delivering a highly diversified investment vehicle characterised by low volatility, low risk of loss, and low correlation to other asset classes.

The Trust breaks new ground regarding accessibility and liquidity for global private credit investing according to Nehemiah Richardson, CEO of Pengana Credit. “This Trust unlocks illiquid institutional grade assets, primarily focused on accessing bilateral loans to midmarket companies, and makes them available to retail investors via the ASX. This mid-market segment has reaped some of the best rewards from the tailwinds enjoyed by the global private credit sector in recent years.

“These diversified global private credit investments are typically out of reach for all but the largest investors, such as the big superannuation funds and the Future Fund, which have increased allocations to private markets.

“Now, through our listed investment vehicle, everyday investors can benefit from the same returns potential and diversification of global private credit that has been enjoyed by institutional investors for years.”

Mr. Richardson said global private credit adds a defensive aspect to investment portfolios. “Global private credit has a track record of providing diversification benefits to investment portfolios given its low volatility, and low correlation to asset classes such as public fixed income and equities.”

He said the Pengana Global Private Credit Trust will be one of the most diversified global private credit funds on the ASX. “Diversification is structurally important to provide liquidity, and continued performance through market cycles. Hence the Trust will provide investors with an elegant way to access more than 2,000 individual loans across 19 underlying funds sourced and approved by Mercer.”

Perhaps the most unique innovation of the Pengana Global Private Credit Trust is in offering investors the ability to make redemptions at NAV, by way of a quarterly off-market buyback offer. “Making quarterly redemptions available at NAV solves a key potential issue that we have seen with the LIT model, and should give investors confidence and price certainty when they choose to realise their investment. This is a powerful feature in the context of portfolio construction considerations, allowing investors to confidently access highly sought after investments in a truly unique form.”

The announcement of PCX follows previous announcements of a $200m seed investment by Pengana’s largest shareholder Washington H. Soul Pattison, and the appointment of Mercer as a specialist investment advisor. Russel Pillemer, CEO of Pengana Capital Group, said Mercer’s size and scale is critical in sourcing quality global private credit opportunities, and makes the investment vehicle unique in its ability to deliver an optimal global private credit vehicle for Australian investors. “Success in global private credit is about having access to the highest quality managers, and the synergies between Mercer and Pengana help to provide access to our investors at the highest level.

“Quality builds resilience in the portfolio and allows us to target a high monthly cash distribution as well as the return profile generally expected from highly rated global private credit investments, along with the ability to offer quarterly redemptions at NAV.

“PCX will target loans which are typically individually negotiated and structured, allowing the borrower to obtain legally enforceable protections. This can lead to lower default rates and higher recovery rates than other fixed income alternatives.”

Pengana will host a deep dive into global private credit and the PCX offer via a webinar scheduled for 14 May 2024.

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Nehemiah Richardson,

Global private credit can play a bigger role in diversifying Australian investment portfolios, as sticky inflation and the prospect of yet more rate rises continue to eat into returns.

This is the view of Nehemiah Richardson, CEO of Pengana Credit, who said global private credit was being used by institutional investors to provide valuable diversification and the ability to roll with interest rate movements. “It’s no secret institutional investors are attracted to global private credit, partly due to the ability for this asset class to provide some cushion against interest rate fluctuations.

“Global private credit securities are predominantly floating rate, so reset either monthly or quarterly as interest rates move.

“Floating rate securities are very attractive as the rate move preserves the value of capital. So while there is no perfect hedge for inflation, a floating rate is a significant insulator.”

He said these investments provide significantly wider diversification opportunities than private credit in Australia. “Global private credit securities are more diversified given the structural retreat of banks from very large market segments, like the corporate mid-market in the US and Europe, resulting in a very large universe of available lending opportunities.

“The key to success in this asset class is ensuring quality of the underlying loans and this is where quality private credit managers come in.”

Mr Richardson said Australian wholesale and retail investors need more options to diversify their portfolios with income-producing investments that have low volatility and correlation to traded markets. “Inflation is eroding the value of cash and term deposits. Liquid credit assets can be quite volatile, particularly when central banks move base rates as quickly as they have over the past 12 months. Bonds that trade suffer when rates go up, unless they are floating rate.

“Global private credit adds diversification, capital stability and return-generating potential.”

He said global private credit portfolios often comprise hundreds of different securities. “There’s opportunity to diversify across regions, non-cyclical industries, maturities, and strategies.

“Importantly, investors have protection from defaults. The lender has significant information on the borrower, which translates to contractual protections that allow the lender to intervene early if a company’s performance starts to deteriorate.

“While this is a general characteristic, it can be particularly handy in uncertain economic environments.”

The Pengana Diversified Private Credit Fund recently opened to wholesale investors and will target a total net return equivalent to the RBA cash rate plus 8%. Mr Richardson said they were working on providing access to retail investors shortly. “It’s obvious why institutions find this asset class attractive, and local retail investors should also benefit from this asset class.”

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