Yield crunch signals peak in private credit boom
Returns on private credit investments are falling as more funds, fewer suitable assets and looming regulatory scrutiny all dampen the market.
The private credit boom in Australia is showing signs of peaking, with increased competition driving down yields just as risk-free interest rates rise and regulatory scrutiny intensifies.
Typical of a late cycle, more new funds are now being marketed, including some targeting retail investors, diverging from the more established base of institutional and sophisticated investors, family offices and high-net-worth individuals.
“The last six months, we've seen an absolute spike in [private credit],” Alceon head of real estate Grant Atchison said. “Every day of the week you're reading about a new shop opening, another billion dollars coming in from offshore.”
This surge is driving down returns that had been in the low double digits, attracting investors willing to take on a little more risk for higher fixed interest returns. Atchison told Capital Brief that these returns had since dropped to “probably single digits”.
