The growing role of alternatives in investing

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For retail investors, the idea of alternative investments may seem complex. But there are exciting developments in this space.

Mention the term 'alternative' assets, and thoughts of complicated, high risk markets can come to mind.

But that's not always the case.

sponsored the role of alternatives in investing

It can come as a surprise to learn that historically, the three main asset classes have always been cash, bonds and shares.

Everything else falls under the umbrella of 'alternative' investments.

So, strictly speaking, property is an alternative asset. It means vast numbers of Australians are already alternative investors.

More alternatives are available to retail investors

What's noteworthy for retail investors, is that the range of alternative investments is growing.

As the options expand, these markets are reaching critical mass, providing opportunities for -Australian investors to participate.

This shift is too big to ignore for anyone who is serious about their investment portfolio. And investors around the world are wasting no time seizing the opportunities.

According to Macquarie, as of 2023, individual investors globally had 5% of their wealth allocated to alternatives. This is forecast to grow at compound annual growth rate of 9.3% throughout much of this decade.

It makes the wider alternatives sector worth a closer look.

And of all the assets broadly classed as 'alternative', private credit deserves special attention.

What is private credit and what role does it play?

Private credit refers to lending by private investment institutions - essentially non-bank lenders - to individuals, companies and even governments.

This is an investment theme that I am truly passionate about.

For full disclosure, La Trobe Financial has been managing alternative assets and private credit since 1952. That's over 70 years, so we have the benefit of considerable experience.

As our 100,000 investors know, private credit can play a key role in a portfolio.

It can be a source of regular income, with the ability to be paid monthly. And as returns on private credit are not linked to equity markets, investors experience none of the tumultuous highs and lows we often see with shares.

Australia's private credit market is strong. However, if we cast our net wider, there are exceptional global opportunities for investors.

US private credit - impressive growth with more to come

Take the US, for example. Since 1999, the corporate loan market has steadily shifted towards private credit. This is a structural shift that has slowly but surely seen a rise in the total value of private credit in the market.

As a guide, the market was worth about $US1 trillion ($A1.5 trillion) in 2020. It's now pushing past $US2 trillion ($A3 trillion).

For context, that's about the size of the entire Australian share market.

For retail investors, this growth is providing more and more opportunities to participate.

Those opportunities will only be strengthened by the billions of dollars in public spending pledged through the Inflation Reduction Act (IRA).  If you're not familiar with it, the IRA is a piece of climate legislation, and contains about $A520 billion worth of programs and funding to accelerate the transition to net zero in the US.

Such is the scale of this spending that Australia's own Climate Energy Council has noted that the IRA has "global ramifications".  In the US, the IRA is expected to re-shore manufacturing and jobs to the heartland of America, particularly the US middle market.

It's not hard to see how this will intensify demand for private credit.

A simple way to access US private credit

The upshot is that private credit is classified as an alternative investment. This can be an unfamiliar label. But private credit is not a new type of asset or investment.

It's just that until now, private credit has largely been the domain of institutional and wholesale investors.

As a highly experienced alternative asset manager, La Trobe Financial is at the forefront of providing Australian investors an opportunity to participate in the US private credit market - and the rebuild of the US middle market - through the launch of our La Trobe US Private Credit Fund.

It is a product we are incredibly excited about.

We have designed the La Trobe US Private Credit Fund very deliberately, with the Australian retail investor in mind.

With a target yield of 8.5%p.a. net of fees and costs, the fund allows individual investors to access senior secured loans provided to US middle market companies. These companies are owned by some of the largest private equity firms in the world.

If you are keen to add diversity to your investment mix, and reap the rewards of healthy yields with less of the volatility we see in share markets, US private credit likely deserves a place in your portfolio.

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe US Private Credit Fund ARSN 677 174 382. The PDS for the La Trobe US Private Credit Fund will be available on La Trobe Financial's website on or around June 14, 2024. The target market description is available at www.latrobefinancial.com.au. Financial product advice in this article is general only and does not consider your personal circumstances. Past performance is not a reliable indicator of future performance.

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Chris Paton is chief investment officer at La Trobe Financial. He has more than 14 years' experience in banking, asset management and financial services and has held a number of senior roles since joining the business in 2017. Prior to joining La Trobe Financial, Chris worked in law specialising in the banking and finance sector. He holds Bachelors in Commerce (Distinction) and Law (Hons).