Private credit boom as lenders clamours for cash

A surge of demand in the private credit market has seen Australia awash with fundies chasing cash amid the global boom in non-bank lending.

AlbaCore Capital Group partners Zeynep Tumer Bayazid and Deborah Cohen Malka. Picture: Jane Dempster

A surge of demand in the private credit market has seen Australia awash with fundies chasing cash amid the global boom in non-bank lending.

The post-results season migration often sees the movement of fundies and bankers, but this year several lenders have descended on Australia chasing access to the country’s $3.5 trillion pool of retirement savings.

It comes as the global demand for cash tightens, amid a pullback by banks in Europe and the US amid uncertainty.

The high-profile collapse of Silicon Valley Bank and absorption of Credit Suisse by UBS were symptomatic of the malaise in the post-Covid banking system as lenders were pinched by rising rates.

Private credit is in demand as businesses increasingly cannot access cash from the banks, which feel uncomfortable about extending lines of credit amid a tightening regulatory environment.

Among the lenders descending on Australia are Arcmont Asset Management and Churchill, the US and European private credit arms of financial giant Nuveen.

Nuveen, the asset management heavyweight, is itself owned by retirement giant TIAA, the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund.

Churchill was successful last year in securing $US1.5bn ($2.3bn) in backing from AustralianSuper, after the superannuation fund increased its initial $250m mandate, marking a growing mood for private credit investments.

AusSuper, the $300bn retirement giant, has increased its private credit allocation in recent years to more than $4.5bn.

IFM has also moved into specialist corporate lending, after readying itself in 2020, while Aware Super has also moved into the space, lending directly to companies alongside Cbus, which launched into the market in 2019.

Funds management heavyweight Soul Patts also handed Sydney investment house Pengana $200m when it launched a private debt play in April last year focused on the US market.

Nuveen Australia managing director Andrew Kleinig said demand for private credit had accelerated over the past six years, after its first forays in the wake of the Global Financial Crisis.

Mr Kleinig said super funds were waking up to private credit as a way to diversify their income streams, and said the increasing size of the retirement pool would only drive more funds into the asset class. He said private credit soared in investor interest during the pandemic years, as low rates drove down potential rates of return from fixed interest assets. Private credit offered floor rates as well as premiums of up to 600 basis points.

Nuveen Private Capital business now boasts $89bn in assets, in the wake of recent expansion.

Mr Kleinig said retail and high-net wealth customers were increasingly looking to invest in private credit. “My view is the sophistication of the private wealth space is not as far behind the institutional space as some might think,” he said.

Mr Kleinig said the market was still “tiny” compared to how many businesses used bank lending. But there was “huge demand”, as private equity players looked to deploy their cash raised in recent years in mergers and acquisitions.

“I don’t see that drying up,” Mr Kleinig said. Nuveen’s Arcmont Asset management CEO, Anthony Fobel, said although investors had concerns about how private credit would perform in a higher rate environment, the floating rates attached to the lending facilities had been a “good inflation hedge”.

Mr Fobel said Armont had “never lost a single cent on a single deal we’ve invested in”, but said many private credit lenders faced taking haircuts on deals by taking too large an exposure.

Churchill recently closed its latest fund, a €10bn ($15bn) scheme.

Ken Kencel, CEO of Nuveen subsidiary Churchill Asset Management, said private credit was gaining ground as banks pulled back from mid-market lending.

Mr Kencel and Mr Fobel are set to embark on a Sydney to Melbourne roadshow, meeting institutions keen on private credit.

First Sentier Investors, formerly Colonial First State Global Asset Management, has also entered the private lending sector through European lender AlbaCore.

Also on a client roadshow, AlbaCore Capital Group partners Deborah Cohen Malka and Zeynep Tumer Bayazid touted the potential returns from private credit to Australian institutional clients.

Ms Bayazid said institutional investors and wholesale family ­office investors were keen to hear about the potential returns from private credits.

“There might be certain investments that may be quite an attractive allocation for a family office and on the other side for institutional investors that want scalable exposure to certain parts of the market,” she said.

“But if you look at our investor base, as well as primarily institutional investors, (we have) pension funds, insurance companies, consultant-driven allocations, and also sovereign wealth funds.”

Originally published as Private credit boom as lenders clamours for cash