According to a recent interview of Stephen Nash of Vision Super in the Investment Magazine, the pandemic’s effect on global fixed income rates has meant that investment managers are going to consider capital structure over interest rate risk in creating “the new defensive portfolio” by focusing on private debt investments . People are going to focus on the senior secured lending side of capital structure where you can generate a “decent spread” whilst retaining rights in default that can be exercised.
The increasing importance of private debt has been highlighted by the decreasing yield of 10-year government bonds as well as the “robust” Australian regulatory system. Australia’s strict legal regime assists the lender and recoveries are “typically higher than in most other jurisdictions”, notes Nash. Additionally, Australian credits have generally lower default and higher recovery rates.
“The private debt space is going to get a lot bigger than we can even estimate at the moment. It’s an exciting time in private debt right now”, says Nash.