Are alternative investments right for your portfolio?

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Think alternative investments are too risky for your portfolio? Think again. Here's what alternative investments involve and how you can access them.

Australian investors may be familiar with the term 'alternative' investments. But for many it's something of a grey area shrouded in mystery.

Too risky. Too volatile. Too exotic. These can be some of the common misconceptions around alternative investing.

sponsored are alternative investments for you

Undoubtedly some alternative investments contain higher risk.

But here's the thing.

From a historical perspective, every asset other than cash, bonds and shares has traditionally been classed as 'alternative'.

It means there is a vast universe of investments that come under the umbrella of 'alternative' (and this includes property!).

The problem is that many are not within reach of retail investors.

However, there is one alternative investment market that is quite literally taking the world by storm, and it is fast becoming available to retail investors.

Let's take a closer look.

Private credit - diversification, strong returns, low volatility

It's true that many alternative investments have not been available to individual investors.

A review by Macquarie found that for many years, alternative assets enjoyed a key role in the portfolios of institutional and ultra-high-net-worth investors.

The chief stumbling block for retail investors has been the high levels of capital required to invest, and the relative lack of liquidity.

The same report notes that demand for alternatives has increased as retail investors look for ways to diversify their portfolios.

One alternative asset class that has experienced exceptional growth is private credit, sometimes referred to as 'private capital'.

In essence, private credit refers to loans provided predominantly by non-bank financial institutions.

The graph below highlights just how much this market has expanded as borrowers, often mid-market companies, turn to non-bank lenders for funding.

direct lending market growth

Why has private credit grown so rapidly?

There is a variety of reasons why private credit has seen exponential growth in recent years.

Increased bank regulation has been a key driver, leading banks to step back from funding various types of borrowers.

On the other hand, demand among borrowers has skyrocketed. And it's not just about banks turning off the lending tap.

The International Monetary Fund (IMF) says private credit has grown rapidly because "features such as speed, flexibility, and attentiveness have proved valuable to borrowers."

At the same time, the IMF notes that institutional investors such as super funds and insurance companies have "eagerly invested" in private credit funds, attracted by the "higher returns and less volatility".

Today, we are seeing exciting opportunities for retail investors to access the highly sought-after private credit market.

How to access private credit

One way for retail investors to enjoy a slice of the private credit market is via a managed fund.

La Trobe Financial has been providing access to the Australian private credit market for more than 70 years.

Our Australian Real Estate Private Credit Fund is already popular among our 100,000-plus investors, with a well-deserved reputation for delivering healthy yields and paying regular returns.

Looking ahead, we see attractive opportunities in the US private credit market.

Why invest in US private credit?

The US private credit market eclipses the size of the local Australian market. It also has a track record for impressive returns.

Since 2005, for example, private credit loans to US middle market companies have provided an average total return of about 9.4% annually.

What's especially attractive is that these returns are not correlated to share markets. So there is less edge-of-your-seat volatility.

For Australian investors, including self-managed super funds, this low volatility backed by regular income payments, makes US private credit particularly attractive.

US private credit also brings much-needed diversification to a portfolio, offering a means to diversify by both asset class and geography.

A new opportunity

These upsides have underpinned the launch of La Trobe Financial's US Private Credit Fund.

Our investors have been asking for a broader range of investments for years.  Our US Private Credit Fund seeks to meet that demand.

Today, our US Private Credit Fund brings the powerhouse private credit market of middle America to Australia's retail investors.

It's an exciting opportunity to access an alternative asset class, and strategies, which have previously only been available to institutional and, to a lesser extent, wholesale investors.

As we see it, the offer is compelling - a chance to diversify, with the potential for high returns, regular payments and low volatility - all backed by La Trobe Financial's 70-plus years of experience.

For retail investors in Australia, it makes the La Trobe US Private Credit Fund an opportunity worth exploring.

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 Product Disclosure Statement for Class B Retail Units will be available on La Trobe Financial's website on or around 19 June 2024. The target market description and Target Market Determinations are available at 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. ^Total investors is calculated by adding all individual & joint investors (which includes some investors with a current zero balance in their account) to reasonable estimates of investors investing via platform, trusts or SMSFs.

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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).