Australian Retirement Trust pursues core private credit assets
The Australian superannuation industry, which collectively manages around A$3.7 trillion ($2.5 trillion), is increasingly turning their investment focus to the $1.65-trillion global private credit market.
Private credit has become a compelling alternative in times of economic uncertainty and high interest rates, during a period when traditional fixed-income investments have been underperforming.
"[Our] strategic appetite for private credit is driven by our ambition to build well-diversified portfolios of alternative and unlisted assets encompassing the full capital structure to complement our diversified multi-asset portfolios," Elizabeth Kumaru, head of private corporate assets at The Australian Retirement Trust (ART), told AsianInvestor.
ART is Australia’s second-largest pension fund, with over A$280 billion (USD$187 billion) in assets under management (AUM). It has a current target asset allocation of approximately 4% to core segments of private credit.
ART
Despite the burgeoning interest from other super funds in specialised areas of private credit, ART maintains a disciplined focus on core segments such as corporate direct lending and asset-backed credit.
"The more niche areas of private credit have the potential to diversify a core private credit portfolio; however, ART’s current focus is on scaling and building exposures in the core segments," said Kumaru.
This strategic concentration is part of a calibrated approach to pursue growth while managing associated risks within the broader asset class, she said.
DUE DILIGENCE
With the complexities and potential illiquidity associated with private credit investments, ART has instituted a robust framework for due diligence and manager selection, according to Kumaru.
"ART has a private debt team whose sole focus is on the due diligence, manager selection, and portfolio management of private debt portfolios. This specialisation ensures depth of knowledge and subject matter expertise relating to private debt by sub-strategy and risk profile."
Due diligence is based on a framework used by ART across all asset classes, which is tailored to address unique aspects of private debt investing, including liquidity, she said.
“This selection process aims to identify best-in-class managers with a perceived edge or differentiator versus peers. We aim to build mutually beneficial partnerships where we can scale our investments over time at attractive fee levels.”
By partnering with high-conviction global best-practice investment managers that have demonstrated a disciplined investment approach over time, the fund can ensure access to attractive private credit investment opportunities, said Kumaru.
STRATEGIC COMMITMENT
Looking ahead, the allocation to private credit is seen not just as a tactical adjustment, but as a fundamental shift in portfolio strategy.
"ART has been a long-term investor in private credit, and like all private strategies, delivering successful outcomes requires a long-term commitment to the sector," Kumaru explains.
She emphasised the strategic benefits as the primary rationale for including private credit in ART's portfolios, particularly at a time when other major funds like UniSuper, CBUS and AustralianSuper are also significantly increasing their stakes in global private credit.
This collective movement towards private credit by Australian pension funds highlights their conviction in its potential for long-term growth and attractive risk-adjusted returns.
“We have made a strategic commitment, and while we will always seek to use our competitive advantage of strong positive net cashflows to take advantage of attractive tactical entry points, the strategic benefits are the primary rationale for including private credit in our portfolios,” said Kumaru.