How private credit offers investing opportunities close to home

Low volatility plus strong, regular returns? Australia's homegrown private credit market can tick plenty of boxes.

We all know the drill: add international investments to your portfolio because Australia represents a small fraction of global markets.

But when it comes to diversification, Australia's private credit market has a lot going for it.

Opportunities exist for investors to enjoy healthy yields with low volatility in an asset class that can perform well at all points along the economic cycle.

What is private credit?

Private credit is essentially any lending by non-bank financial institutions. The loans are often extended to businesses but private credit also includes lending to a wide and deep market, such as lending to individuals to buy an investment property. Consider not just home buyers, but also business owners, property investors, developers and commercial borrowers.

Non-bank lenders often source their funds from large institutional investors such as super funds and the Big 4 banks themselves.  And for the past 70 years, La Trobe Financial has been a consistent participant in Australia's real estate private credit market.  For the last 35 years, we have provided opportunities for everyday Australian investors to add private credit to their portfolios.

Our popular 12 Month Term Account, for example, is backed by residential mortgages and a targeted exposure to commercial, industrial, vacant land, rural and development loans. This gives investors exposure to a strong underlying asset class, coupled with the appeal of healthy yields and wide portfolio diversification.

Better still, returns on private credit are not linked to public or equity markets. So investors can be confident that at least part of their overall portfolio won't be impacted by the unsettling volatility seen in equity markets.

Why Australian private credit?

While Australia's private credit markets may represent a small slice of the $US 2.1 trillion global private credit market, the secret sauce of our domestic market is the resilience of the Australian economy.

The performance of Australia's economy has been nothing short of remarkable. The Reserve Bank acknowledges this, with our last deep recession being back in the early 1990s.

Unemployment rates remain close to record lows, inflation is decreasing, and the economy continued to grow through 2023/24.

This economic resilience has allowed private credit and in particular real estate private credit, to perform for investors over decades.

However, when any market grows, new entrants inevitably arrive on the scene, often with limited experience.

That's certainly been the case for private credit funds in recent years.

So, what should investors look for when selecting a private credit manager?

4 factors to weigh up

With any investment, it can be tempting to focus just on returns. The catch is that past returns are backward looking.

Four key factors can help you decide if a private credit manager has the credentials to deliver strong returns in the future while carefully managing risk:

1. Experience

When you choose a fund manager, you aren't just investing in the underlying assets. You are investing in the fund manager's experience to manage those assets across a wide range of economic conditions.

La Trobe Financial is no newcomer to private credit.

Our experience, spanning more than seven decades, sees us regarded as one of the best in the business with a reputation for a focus on quality, discipline and consistent performance across the economic cycle.

2. Transparency

As an investor, it makes sense to know how and where your money is invested.

All private credit funds are required to issue a product disclosure statement. However, these don't reveal what is happening on a day to day basis.

La Trobe Financial has a real focus on transparency. At any time - 24/7, investors can jump onto our online snapshot reports to see a vast array of product detail.

These snapshots are updated monthly, and show how many loans are behind each investment product, the average loan size, the smallest and largest loan values, the average loan to value ratio (LVR) and much more.

Our investors don't always need this depth of information. But it's reassuring to know it's available. More importantly, it confirms that we have nothing to hide.

3. Scale

When it comes to private credit funds, size matters.

La Trobe Financial manages assets worth almost $21 billion for over 100,000 investors*, including some of the world's largest financial institutions.

This scale allows us to perform in-depth research, remain competitive, and continue to explore new opportunities.

Our scale also means we are able to provide investment opportunities that are accessible for all Australians - even if you don't have large sums to invest.

4. Simplicity

When it comes to investing, simplicity beats complexity.

Simplicity makes an investment easier to understand, so you can assess the risks involved, and decide if the product is right for you and your goals.

Investment trends come and go, but solid fundamentals perform across the cycle.

That's why La Trobe Financial is committed to simple, foundational tenets, which have provided a long history of performance for our investors: Quality assets, carefully selected and diversified, and managed in transparent structures by skilled professionals.

* 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.

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important that you consider the Product Disclosure Statement (PDS) before deciding whether to invest or continue to invest in the fund. The PDS and Target Market Determination are available on the La Trobe Financial website. Past Performance is not a reliable indicator of future performance. Any financial product advice is general only and has been prepared without considering your objectives, financial situation or needs. You should, before investing or continuing to invest in the La Trobe Australian Credit Fund, consider the appropriateness of the advice having regard to your objectives, financial situation or needs and obtain and consider the Product Disclosure Statement for the fund.

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