Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Imperative private credit investors understand loan quality
Private credit growth has been a headline investment story in recent years. Globally, the market is estimated to have grown 10-fold since 2007 and is projected to hit $US3.5 trillion ($5.6 trillion) by 2028. In Australia, EY puts the private lending sector at $200 billion – about 2.5 per cent of outstanding corporate debt.
While this asset class has a long history, it’s only in the past 15 years or so that it has emerged from being a fringe product. Where private credit was mainly used by medium-sized developers for project funding and attracting capital from the institutional and wholesale sectors, it is now a multi-trillion-dollar market with investors from every corner of the market.
Two key elements have driven this renaissance. First, in the wake of the GFC and the Basel accords, the major banks stepped back from funding smaller property projects (under $100 million), creating a market niche for private lenders. Second, there has been strong investor demand for high and steady income – especially when the cash rate was at a record low.
While investors are primarily interested in the yield story, it’s imperative they understand the quality of the loans. Put simply, it pays to look closely under the bonnet before investing.
Property fund manager Trilogy Funds, one of the earlier entrants to this market with the launch of its Trilogy Monthly Income Trust in 2007, firmly believes that investors – particularly retail investors – want a credit fund that delivers stability and consistent returns.
Clinton Arentz (pictured), Trilogy’s executive director and head of lending, says the fund has paid steady distributions right through this period – including the GFC and COVID. At February 28, 2025, it had delivered returns of 7.49 per cent a year since inception.
“There have been some ups and downs, which is to be expected with crises like the GFC and COVID, but it’s fair to say performance has been reasonably consistent over what has been two turbulent decades,” he tells The Golden Times.
But Arentz is insistent that for many investors, it is not just an income story – they want to know their investment is being managed with a focus on capital preservation.
“Investors appreciate the risk management advantages of a diversified portfolio with more than 120 commercial loans underpinned by first-mortgage security and managed by a professional team.
“Over time, we’ve facilitated thousands of projects that have been successfully funded, completed and the loans repaid – and that’s all added to the housing stock up and down the east coast of Australia.”
Trilogy has an approved maximum loan limit of $50 million, with the current average loan size of about $8 million – a conservative approach, especially when coupled with an average 65 per cent gearing ratio and having first-security mortgage.
Another aspect of Trilogy’s lending model is a focus on liquidity to ensure there’s always capacity to fund a project. As Arentz explains, it gives investors confidence in knowing that project financing is in place and that dedicated staff have the responsibility for monitoring these projects from start to finish.
Trilogy has a track record of, and continued focus on, financing projects across the residential and commercial sectors. What has assisted in overseeing this diverse portfolio of projects across Australia is the enhanced use of technology.
“We have our own internal business intelligence unit that’s constantly improving our systems,” Arentz says. “For instance, we developed a system that manages the cash flow of every project daily. It allows us to examine the performance of a project through any prism – whether it’s construction, sales or value – as well as how it’s tracking against the original forecast models.
“We’re constantly analysing this data that’s then reviewed at weekly performance meetings, by our lending committee and, ultimately, the board.”
It’s not just an exercise in data gathering and analysis. There are regular site visits and meetings with all stakeholders with the feedback from both adding another dimension to the analysis.
Arentz concludes that such an exacting process is important for investors who want to be reassured that every effort is being made to safeguard their investment.
“It has ensured we have been able to maintain an extremely low published default rate and, importantly, that’s simply loans that have fallen behind in their scheduled payment.
“When it’s considered what the industry has been through in recent years – COVID, higher interest rates, supply-chain disruption and labour shortages – it’s a remarkable outcome and a testimony to the resilience of our loan processing systems, processes and procedures.”
