Credit firms shun Australian returns

Returns in Australian private credit are not proving lucrative enough for the globe’s biggest players.

Major global powerhouses in the global credit industry are steering away from the Australian market and are looking to where they can get higher returns.

The Australian private credit industry has grown substantially in the past ten years, with the Reserve Bank of Australia estimating that there is about $40bn of private credit outstanding in Australia, which is about 2.5 per cent of total business debt.

That compares to less than $5bn over a decade ago.

Globally, private credit assets under management have quadrupled over the past decade to $US2.1t in 2023 and North America accounts for around 70 per cent of global private credit raised since 2008.

Europe represents about one quarter.

In Australia, market experts say that the returns are about two per cent to three per cent less than Europe and the United States because of the number of players operating in this market compared to investment opportunities.

Apollo Global Management, Bain Capital and Blackstone are among the groups that are treating other markets more favourably.

Apollo outlined in its second quarter result that it has $US72bn of dry powder when it comes to its assets under management, including $US29bn of equity and $US42bn of credit, up 5.9 per cent from a year ago.

The Australian’s sister publication, The Wall Street Journal, reported this week that Apollo sees rising deal opportunities in Europe.

“Europe is an area [in which] we are investing significant time and resources to expand,” Apollo President Jim Zelter said Tuesday during a call with analysts to discuss the New York firm’s most recent results.

“Over the coming years, we see a substantial origination opportunity as the region commits to infrastructure investments, defence, re-industrialisation and power generation.”

Apollo is particularly interested in Germany and has committed to invest more than $US100bn over the next decade.

Apollo is also raising its bets in Europe’s retirement-services industry, with Athora Holding, an Apollo-backed insurer, buying UK-based specialist insurer Pension Insurance for $US7.8bn.

Apollo’s net income fell 27 per cent to $US605m from last year’s second quarter, while revenue climbed 13 per cent to $US6.81bn.

Additional reporting: The Wall Street Journal