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Global private credit adds more diversification to Aussie portfolios

Oksana Patron9 November 2023
Colonial First State CFS Edge Wealth Management platform

Global private credit has a particular role to play in portfolios at times when inflation and interest rate hikes continue to eat into returns as it offers more diversification, according to Nehemiah Richardson, chief executive of Pengana Credit.

According to him, this asset class, with global private credit securities being predominantly floating rate, can provide investors in Australia ‘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,” he stressed.

Richardson said Australian wholesale and retail investors needed 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,” he added.

Also, global private credit portfolios often comprise hundreds of different securities, which means there is 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,” he said.

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

Moody’s recently has announced the creation of a new analytical franchise within its rating agency, Moody’s Investors Service (MIS), that will focus on insights into the sector of private credit to reflect a growing demand from investors for research and ratings across this asset class.



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