Private credit ‘explosion’ to continue despite easing interest rates

While easing interest rates don’t typically present favourable conditions for private credit to perform, the chief executive of Pengana Capital Group’s specialist private credit arm has faith that the influx of investor appetite is a sign of success.

Nehemiah Richardson, CEO of Pengana Credit, said private credit can rely on the strong probability that interest rates will remain “higher for longer” and a visible rise in corporate activity in key markets, such as the US and Europe.

“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,” he said.

“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.

“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.”

Richardson also cited the “underlying structural changes” that occurred post-Global Financial Crisis (GFC) which have seen the private credit industry almost triple in value to US$1.5 trillion at the beginning of 2024.

“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,” he said.

“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.”

Pengana has a number of private credit investment strategies it developed with Mercer that are available, including the TermPlus online term account, the listed Pengana Global Private Credit Trust (PCX), the unlisted wholesale Pengana Diversified Private Credit Fund and a separately managed account (SMA) fund available via the North platform.