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The private credit market in Australia has grown rapidly in the last decade. According to analysis from SQM research, it grew from $33 billion in 2016 to an estimated $205 billion in 2024.
This surge has been fuelled by two main factors: businesses seeking faster and more flexible alternatives to traditional bank financing and more investors deciding to invest in private credit.
How Do Private Credit Investments Work?
On one side of a private credit fund are businesses that are seeking fast, flexible, and affordable loans to finance their growth or get them through a tough period. Many of these businesses cannot access traditional bank loans for various reasons, such as an unconventional business structure or the need for customised loan terms.
On the other side are investors who provide the money that is lent out to businesses. So, when investors put their money in a private credit fund, they are investing in loans that businesses take on through the fund.
The private credit fund generates returns for investors through interest payments and loan fees.
Who Can Invest in Private Credit Funds?
At PSA Capital Investments, investment opportunities in our private credit fund are open to sophisticated and wholesale investors. This is the case for most other private credit funds as well.
Sophisticated investors are those with assets of at least $2.5 million and have earned a gross yearly income of at least $250,000 in the last two years. Additionally, different private credit have varying minimum investment requirements, typically ranging from $50,000 to $500,000.
What are The Returns on Private Credit Investments?
Generally, private credit investments provide stronger and more reliable returns compared to those from public markets and fixed-income assets.
PSA investors can expect average returns of over 8% per annum, on par with top private credit firms in Australia. For this reason, private credit funds are a good option for investors seeking secure, high-yield investments.
How Private Credit Investing Offers Safety and Reliability
Traditionally, investors expect that an investment that offers strong returns also comes with high risk. That’s not necessarily the case when it comes to private credit fund investments.
While they are riskier than traditional conservative investments like government bonds, they are lower on the risk spectrum compared to other asset classes like stocks and shares, private equity, and venture capital. Here are some reasons why:
- Loans from a private credit fund have well-defined terms, including interest rate, payment schedule, and maturity date. So returns are predictable and reliable. In contrast, the volatility of the share market means unpredictable equity returns.
- Loan terms typically include agreements on what will happen in the event of a default, such as selling secured assets. So, investors are protected even if a borrower is unable to repay a loan.
- The flexibility of private credit lending allows the fund to respond quickly and effectively in case the borrower is in distress. They can renegotiate terms, provide business or management guidance, and other actions that reduce the risk of default.
- Private credit funds carry out rigorous risk assessment and due diligence to ensure they lend to the right borrowers, further reducing the chances of a default.
In addition to all these, PSA has a 10% co-investment that provides income priority to investors.
Other measures we take to protect investor capital include not engaging in consumer credit lending, friendly loan terms that allow businesses to repay and exit the arrangement faster, and requiring security backing of at least 160% on loans.
When to Consider Investing in Private Credit
Private credit investing is a great option if you’re thinking about diversifying your investment portfolio, particularly if you’re looking to make it more defensive.
The low-risk nature of private credit makes it a good counterbalance to riskier assets like shares and private equity. It can also increase returns if your portfolio is filled with fixed-income assets.
Invest With the PSA Private Credit Fund
The PSA private credit fund delivers strong returns while protecting your capital, making it a great fit for your defensive portfolio. Our diverse investment portfolio spanning a range of industries, combined with a stringent due diligence process, has allowed PSA to reliably deliver over 8% annual returns to investors.
Contact us today at (03) 9847 7689 to learn how you can invest in the PSA private credit fund and enjoy a secure, low-risk investment with strong returns.
Disclaimer: The information contained in this document is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs.
