ART’s Parker fears for retail private credit exposure

Australian Retirement Trust (ART) may be holding 2-3 per cent of its $330 billion portfolio in private credit but chief economist Brian Parker is worried about retail investors entering the space.

Speaking at an adviser event in Sydney, Parker discussed the move by retail and wholesale investors into private credit, an asset class typically held by institutional investors such as super funds.

This has gained prominence in recent weeks as several large funds run by Apollo Global, Ares, Blackstone, BlackRock and Blue Owl all experienced heavy redemptions.

In the case of Apollo, Ares and BlackRock, the firms opted to maintain the 5 per cent redemption limit even though the redemptions exceeded this.

On the other hand, Blackstone lifted its usual 5 per cent redemption limit to 7 per cent while the firm invested US$400 million to allow all requests to be met.

He said: “The origin [of private credit] in the past decade came about from the regulatory response to the Global Financial Crisis when longer-term borrowers were lent to banks with short-term liabilities which created a potential mismatch which was destabilising.

“So then it was about allocating long-term capital to long-term borrowers, that’s fine in principle, but are we going to go through a period where private credit borrowers could get into trouble? Absolutely.

“I do worry about that retail exposure.”

He said the way that ART protected itself against potential private credit problems was by doing its homework, being well diversified across hundreds of assets and partnering with experienced managers.

It currently has around 2-3 per cent of portfolio allocated to the asset class.

“When we invest, we are investing alongside like-minded investors, the likelihood of one of our co-investors is going to hit the wall and leave us stranded is fairly remote.

“I don’t believe these private credit assets are a natural fit for retail investors. These vehicles may say they give quarterly liquidity but if a whole bunch of people head for the exit at once then you will be stranded, even if you aren’t looking to get out.”