Uncertainty around tariffs and subdued growth may lead to some short-term constraints in relation to the private credit market, the fund manager has said.
IFM Investors’ Australian co-head of diversified credit, Hiran Wanigasekera, said that while the private credit market is likely to be stable in the longer term, some of the uncertainty in the economy at the moment could have impacts in the shorter term.
Wanigasekera said that while it was difficult to determine what level of impact tariffs and other changes will have on the market, these factors are likely to influence decisions on business investment over the coming months.
“For longer-term investing, it will likely be okay but there’ll be some impacts in the shorter-term,” Wanigasekera said.
“You can’t really make an investment unless you’re certain about the taxation environment or tariff environment and how customer behaviour might be.”
For the local private credit market, Wanigasekera said the biggest influence will be the continuing trade war between China and the US and how that plays out in the Chinese economy, he explained.
From an investor perspective, Wanigasekera said he expects demand for the asset class will remain strong, with the relative value of private credit relative to other asset classes to improve further.
“Private credit has comfortably been able to deliver a near 10 per cent return,” he said.
While private credit is considered illiquid, Wanigasekera said it was not as illiquid as some types of alternative investments and provides benefits such as continuous access to income.
Coller Capital agrees that while geopolitical risk and the macro environment will have some influence over investment decisions relating to private credit and markets more broadly in the shorter term, active interest in the asset class will continue in the coming years.
Coller Capital investment principal William Yea said private credit secondaries have been getting greater attention due to some of the structural benefits they offer, along with infrastructure assets.
“They both play to that theme of defensiveness and cash flow generation,” Yea said.
A recent survey by Coller Capital, the Global Private Capital Barometer, found that 45 per cent of investors or limited partners planned to increase their allocation to private credit, up from 37 per cent six months ago.
Coller Capital chief investment officer Jeremy Coller said new challenges called for new strategies and that investors were increasingly exploring alternative options to deliver returns.
“LPs are continuing to increase their interest in private credit and secondaries and making new forays into evergreens,” Coller said.
