Look past property as private credit diversifier: Tanarra Credit

New commentary from GSFM subsidiary, Tanarra Credit Partners TCP), has urged investors to consider options other than real estate when it comes to diversifying their private credit exposure.

This comes as real estate exposure continues to climb when also considering superannuation, according to TCP Managing Director, Peter Szekely.

“Of the $4.2 trillion in superannuation at end 2024, nearly one-third is held in SMSFs. Asset allocation data for the same time period shows property represents 17 per cent of SMSF portfolios on average, only second to Australian shares at 27 per cent,” he said.

“[Diversification] is critical for successful portfolio construction. This involves spreading exposure across industries, borrower types, geographies, and assets in order to mitigate concentration risk and ensure a more stable return.

“A well-diversified portfolio is better positioned to preserve capital and deliver more resilient, consistent returns throughout the economic cycle.”

Szekely said TCP is also concentrated on corporate lending in defensive sectors, providing a diversification and stability edge by investing in sectors including information technology, health care, childcare, professional services, education and industrials.

“It might be a popular dinner table conversation topic, but Australians really need to understand their exposure to real estate. An overweight position in property – in either debt or equity – can negatively impact the performance of a portfolio,” Szekely said.

“This is even more important given current geopolitical and economic uncertainties and high market volatility. Investors need to make sure their portfolios are well diversified and positioned away from those industries most likely to come under pressure.”

Szekely encouraged investors to remain aware of ongoing market risks when it comes to property investment, particularly considering the impacts of the construction sector on valuations and overall volatility.

“For example, the construction industry is presently dealing with rising material costs and skilled labour shortages which, combined with fixed price contracts, puts pressure on cashflow,” Szekely said.