Moelis Australia’s Private Credit Fund, a portfolio of exposures to mid-market corporates and SMEs, has inked its first two loans.

Three of the four remaining seed assets are continuing through due diligence while the opportunity pipeline has grown to over $320m.  

Portfolio Manager, Oliver Trajcevski, said the growing pipeline was presenting the Fund opportunities to select high quality credit aligned with the Fund’s mandate.

 “What we like about our first two deals is that one of them is the market leader in its sector and the other has long term contracts with blue chip counterparties. Both are heavily asset backed, which has met our mandate of lending to strong asset backed, contracted income and experienced management borrowers,” said Oliver.       

The Private Credit Fund is currently open to wholesale investment opportunities.  

The Opportunity in Private Credit

While the private credit market is not a new asset class, nor a small one, it has previously been an asset class dominated by institutional investors.

However, with the continual decline in 2019 in lending by the Australian banks to Australian businesses, there has been significant growth in non-bank lending and subsequently strong growth in the number of private credit opportunities.

In a low interest rate environment, we are seeing strong appetite from wholesale investors for the strong risk adjusted yield returns that private credit opportunities can deliver.

The Size of the Private Credit market

Private credit is a $2.8 trillion market and the largest asset class worldwide. Superseding the S&P/ASX200 index and the Australia superannuation savings pool, it has been growing at a compound annual growth rate (CAGR) of 7.6 percent, since 2003[1].              

 

                                                                                

  

A Changing Environment 

Collectively, the Big 4 Banks encompass 75% of the Australian private credit market[2]. Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2018 however, we have seen the big banks continue to reduce their risk exposure and step back from this market that they have historically dominated.  

This was demonstrated late last year with Westpac’s rumored future exit from their equipment leasing business.

The opportunity pool for SME lending is now more than $400bn.

Moelis Australia and Private Credit    

Moelis Australia is managing in excess of $800 million in credit and fixed income funds and in 2019 commenced a focus on private credit. A new team led by Oliver Trajcevski, a private credit veteran of more than 22 years was formed with our Private Credit Fund opening in late 2019 to priority investors and is now open to all investors.

According to Oliver, investor response has been very strong.

“With the boom in private credit offers in market, certainly awareness and education of the opportunities in the investment class is growing among wholesale investors.

“In an environment of low interest rates and an ever-volatile equities market, investors are attracted to the defensive nature of the fund and the capital protection it targets for a premium return."

   

   

 [1] See graph “Relative size of Australian Private Debt Market’