Multi-Sector Private Debt market opportunity

This report is the second of a two-part series examining the role of private debt in institutional investor portfolios. The first report focuses on global infrastructure debt, while this paper examines the market opportunity for Australian and New Zealand Multi-Sector Private Debt.

QIC’s Multi-Sector Private Debt strategy aims to deliver for clients a steady, high yielding income stream and capital stability from a diversified portfolio of floating rate corporate and leveraged loans, ABS and real estate debt. QIC’s infrastructure debt and Multi-Sector Private Debt strategies are complementary in terms of both geography and nature of their investments and the gross yields available.

Key takeaways:

• In the Australian and New Zealand private debt market we are currently observing higher than normal returns thanks to both increasing base rates and elevated credit premiums.
• In our view the recent market volatility has contributed to an environment where investors can now source high quality domestic private debt assets at gross yields of approximately 9%, compared to around 5% a year ago.
• Capital constraints and rising investor caution have allowed for improved credit terms and more conservative capital structures in recent transactions.
• As this becomes a more “creditor friendly” bias than normal, there is also the potential to influence the deal structure and covenants in a way that strengthens the credit features.
• More attractive secondary positions in market that may be sold for margin or liquidity reasons as opposed to concerns about long-term value.
• There are several tailwinds driving the current supply and demand dynamics in this market including the growth in non-bank lending driven by new regulation for bank capital requirements.
• Overall, we see this is a compelling cyclical and structural opportunity, and a strategic asset class over-allocation could see portfolios well positioned for future returns.