With analysts predicting the size of the private debt market to double in 5 years, AltX discusses what is fuelling this growth and how this growth can only benefit both the capital market and investors.

With greater demand from borrowers and a growing awareness and confidence in the asset class from investors, AltX identifies three key factors fuelling increases in the private debt market.

1. Construction: As construction ramps back up post-lockdown, builders will need capital… and private debt funding is a large and growing contributor to the construction sector in this country.

2. Risk profile: Australia’s private capital market has one of the most attractive risk/return profiles in the world.  And because the underlying asset is often commercial or residential real estate, that is something most Australian investors understand and are very comfortable with.

3. Institutional dollars: We have reached a tipping point in the private debt cycle in Australia where the institutions and super funds that stood on the sidelines and waited for the asset class to prove itself, are now writing cheques. And that will substantially grow the capital pools available.

There are a few key things at play in the capital market that is underpinning this growth of the private debt market.
The pie is getting large so there is a growing demand for capital. Concurrently, the banks’ share of the pie is diminishing with non-bank lenders now accounting for an estimated market share of 10% of the commercial lending market.

There is also a growing appetite for the private debt asset class from investors wanting higher yields. Investors are now being presented with the opportunity to earn significantly stronger returns than from bank term deposits or traditional fixed income.