Australia’s private credit market poised for further growth

The local private credit market, which has flourished in a higher-for-longer rate environment, is poised to continue its growth as interest rates ease, experts predict.

Despite global uncertainty, Australia’s private credit market is predicted to see strong growth in 2025, fuelled by business lending and attractive returns, as the Reserve Bank’s cautious rate cuts support continued demand.

Following the RBA’s first rate cut in over four years, Peter Szekely, managing partner of Tanarra Credit Partners, said Australia’s private credit market is set to offer better returns than global markets like the US, where the Fed has already cut rates by 100 basis points.

Szekely expects only one additional rate cut from the RBA in 2025, as the bank cautiously responds to persistent inflation and a strong labour market, making Australia’s private credit market more attractive for investors.

“With Australian inflation remaining above the RBA’s targeted 2 per cent to 3 per cent band, the RBA is unlikely to drop rates as far or as fast as other central banks. In the US, there is also a risk of inflation accelerating given tariffs and tax cuts,” he said.

“As tight bank lending conditions endured through 2024, borrowers continued to appreciate the speed and adaptability of private credit solutions and so we expect the local market to exhibit robust growth this year,” he added.

Speaking to Super Review's sister title InvestorDaily, Zagga CEO Alan Greenstein said that, despite easing rates, the Australian private credit market is poised to continue attracting investors seeking stable, income-generating alternatives to traditional fixed-income assets.

Looking at historical trends, Greenstein noted that in late 2019 and early 2020, historically low interest rates fuelled demand for yield-generating assets like private credit.

“We expect a similar trend to unfold,” he said.

“For borrowers, a lower-rate environment is likely to enhance borrowers’ debt serviceability, leading to greater lending activity and a broader range of investment opportunities”.

In 2024, Australia’s private credit market grew by over 6 per cent year-on-year to over $200 billion, while globally, it topped US$1.5 trillion at the start of last year and is projected to reach US$2.8 trillion by the end of 2028.

Australia as a private credit hub

Commenting on the growing appeal of the local market to global private credit players, Greenstein highlighted increasing demand from both investors and borrowers as the key factor driving Australia’s rise as a private credit hub.

“In Australia, we are seeing an influx of managers owing to the growing demand from both investors and borrowers,” he said.

“Borrower demand is driven by the pullback of traditional lenders mostly because of regulatory factors and the need for agile, bespoke loan terms, particularly in construction projects and business lending. For investors, the attraction lies in the opportunity for reliable income, strong risk-adjusted returns and stability amid global market volatility.”

Moreover, he noted, Australia is relatively attractive compared with many other markets, such as the UK, EU and North America.

“This is primarily due to our strong economic fundamentals and robust governance framework,” Greenstein said. “For example, Australia has the lowest loss history for corporate lending and a AAA credit rating; our economy continues to prove resilient; and our legal enforcement regime is transparent, reliable, and well-established.”

While still an emerging market compared to its more established counterparts, he emphasised that Australia is uniquely positioned to capitalise on the private credit opportunity, particularly in the property sector, from both a provider and investor perspective.

In recent years, Australian businesses have increasingly turned to private credit for real estate financing. As of 2024, the private debt market in Australia reached approximately $205 billion, with 17 per cent (about AU$85 billion) allocated to commercial real estate loans, a recent report by Alvarez and Marsal revealed.

This opportunity, he noted, has not gone unnoticed by high-net-worth individuals (HNWI) and family offices, both locally and across the APAC region.

In fact, last year, a report by Preqin and the Australian Investment Council uncovered a significant surge in family offices engaging in active investments in private capital, rising from 7 per cent to 36 per cent in 2023 over the past four years.

“Investment exposure from Australian family offices has grown fourfold, while institutional capital and private wealth from Asia is at an all-time high. These trends are reflected in Zagga’s own investor base. Today, 15 per cent of FUM comes from APAC investors, while HNWIs and family offices account for more than 50 per cent of our investor make-up,” Greenstein said.

Looking ahead, Greenstein expects continued demand for Australian real estate private credit, driven by strong underlying property fundamentals, a resilient regulatory environment and growing investor interest in the asset class.

“As the dominance and sophistication of private credit grows, we are overcoming historic misconceptions that private credit is merely a ‘lender of last resort’. Rather, increasingly, borrowers are proactively choosing private credit providers over traditional lenders,” the CEO said.

Addressing concerns about the market’s “opaqueness” raised by regulators, he highlighted that Australia offers a transparent regulatory environment, strong governance and a stable economy, making it an attractive destination for long-term capital deployment.

“To uphold confidence in our industry, we must ensure greater transparency. Industry self-regulation provides a great opportunity to protect our investors and strengthen market confidence, while preserving the speed, agility and commerciality that is make-or-break for our borrowers.”