Where to for savers as rates fall
This report is sponsored by Pengana Capital Group. It was independently researched and written.
Interest rates look set to fall and sharemarkets remain volatile. For investors seeking regular returns that outpace inflation, the options seem to be narrowing. But there is an asset class that can tick all the boxes.
There's a growing consensus that the next move for interest rates is down.
Depending on which big bank economists you listen to, we could be looking at decent falls, possibly a cascade of rate cuts, which could run through to early 2026.
This may be welcome news for the one in three Australians with a mortgage. But for investors looking for healthy, reliable returns - and this includes many of the nation's 4.2 million retirees - lower interest rates can go hand-in-hand with loss of income.
It's not just retirees likely to feel the pinch.
Australia's 619,000 self-managed super funds (SMSFs) typically have a significant investment in cash and term deposits - around 16% of net assets nationally, according to Australian Taxation Office data.
For the 1.1 million Australians who are members of an SMSF, softer interest rates have the potential to reshape retirement plans.
This raises the question 'where to from here?' for investors looking for regular returns that beat inflation.
There is a potential solution. The answer can lie with global private credit.
What is global private credit?
Private credit simply refers to non-bank lending.
When we talk about global private credit, it means the international market for non-bank loans to private companies. In practical terms, we're talking about North America and, to a lesser extent, Europe, which dominate the global private credit market.
Demand for private credit globally has been rising for some time, fuelled by the tightening of banks' capital requirements in the aftermath of the 2008-09 global financial crisis.
For borrowers (usually medium-sized businesses), the appeal of private credit is the opportunity for more bespoke financing solutions compared to traditional bank lending. However, this level of tailoring comes at
a premium. For investors, that premium translates into the potential for higher yields.
The upshot is that both borrowers and investors have been keen to tap into global private credit opportunities, and this has driven substantial market growth.
By way of example, the Reserve Bank of Australia (RBA) says the global private credit market has quadrupled in value over the past decade, reaching $US2.1 trillion ($3.25 trillion) in 2023.
What sort of returns does global private credit generate?
According to the RBA, private credit has 'an attractive risk-return trade-off', with a relatively high interest rate coupled with low volatility. That's very appealing for investors.
Even so, unlike sharemarkets, private credit is not a publicly traded market. So, there is no single index or benchmark that shows past or current returns.
NAB estimates that returns can vary from around 7% through to 15%, though the higher the return, the greater the risk for investors.
The key is to look for transparency around likely returns.
As a guide, global private credit fund manager - Pengana Capital Group - offers an online term account product called TermPlus, which targets monthly returns linked to the RBA cash rate plus a fixed spread.
A 1-year TermPlus account, for instance, aims to return 6.85%pa based on the RBA's cash rate plus 3%.
Choose a 5-year TermPlus product and you can expect a variable return of 8.00% comprising the official cash rate plus an extra 4.15%.
It's a no-brainer that these are attractive returns for many investors. And with Pengana's TermPlus account, investors can choose how they are paid - either receiving monthly income or reinvesting it for compound returns. Better still, the minimum investment is just $2000, so the product is available to a wide range of investors.
That said, investors need to be aware of - and weigh up - the risks of global private credit.
Understanding the risks
To begin with, global private credit is not the same as savings in the bank account. You won't get the protection of the Federal government's guarantee on deposits.
This makes it essential to understand the potential risks involved.
Earlier in 2025, investment regulator ASIC announced it is taking a closer look at private credit in Australia.
ASIC Chair Joe Longo has expressed concern about the local private credit market. He notes, "While it does not appear to be systemically important in Australia, failures are on the horizon and, at current volumes, it is untested by prior crises."
Nehemiah Richardson, chief executive of Pengana Credit, says that with more options becoming available it's important to recognise not all private credit is the same.
"There are some key characteristics of private credit investing that all investors should consider before taking the leap into this asset class," he says.
Diversification is key
An investment in private credit can bring valuable diversity to a portfolio.
According to Richardson, investors should ideally be diversified across geography, strategy, manager, industry, loan origination and more.
The problem, he explains, is that this level of diversification is difficult to achieve in Australia's domestic private credit market.
By contrast, Richardson points out that the leading global private credit funds, like TermPlus, may invest in up to two dozen managers and have 2000 or more underlying loans.
Moreover, he says banking industries behave very differently in Australia compared with the US and Europe.
"The Australian private credit market is skewed to areas where banks don't lend," says Richardson.
"Global private credit, on the other hand, is skewed to defensive industries such as business services, infrastructure services, healthcare, and consumer staples."
Within these industries, Richardson says quality fund managers will focus on companies with strong market positions, pricing power and stable cashflows - qualities he believes that are "critical to managing downside risk".
Additional layers of protection
Individual fund managers may also offer their own safety measures.
Pengana Capital, for example, adds an additional layer of security to its TermPlus accounts through its Support Account - effectively a co-investment by Pengana that provides an extra pool of funds and returns to underpin monthly payments and investor savings.
The verdict
In volatile times, such as we are seeing at present, investors typically seek growth and resilience - qualities that accounting firm EY says private credit markets have demonstrated in abundance in recent years.
By following some simple strategies, it may be possible to enjoy the best of both worlds - strong, regular returns while minimising risk.
These steps can include:
- Taking a global rather than local outlook
- Seeking out an experienced private credit fund and
- Knowing the risks involved.
Tick these boxes and investors can be rewarded with healthy returns and the added sweetener of portfolio diversification.
This report is sponsored by Pengana Capital Group. It was independently researched and written.
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