CEO’s end of year summary

Picture of Article by Alan Greenstein<br>10 December 2024
Article by Alan Greenstein
10 December 2024

As I reflect on 2024...

– leaving aside global geo-politics and other burning issues internationally – and focusing on matters closer to our activities across the Australian eastern seaboard, I reflect on the challenges and opportunities for the Australian economy and the private credit sector, and what these mean for our clients.

During my more than four decades in banking and financial services – the last almost eight at Zagga – I can remember some remarkably challenging times. I believe the period from 2019 to 2026 will rank high on the Top 10, particularly 2023 and 2024 (it’s too early to pontificate on 2025).

We all experienced the stagnation of the Australian economy in the first half of 2024, primarily driven by public sector demand, while private demand declined. Inflation, although trending downwards is 2.8% within the upper band of the RBA’s target, but not low enough to cut interest rates soon. The unemployment rate edged up slightly, reflecting the broader economic slowdown. Many households are doing it tough. The standard of living is declining. Previously ‘bullet-proof’ pockets of the residential housing market are softening, as an increasingly larger share of wallet is directed towards basic necessities and non-discretionary spend. As we start 2025, the smart money is now predicting a cut only from May 2025 (by which the next Federal election must be called).

Private credit has been the ‘go to’ investment class for 2024.

Globally, there are many reasons for this, with private sector credit growing by 6.1% year-on-year and showing remarkable durability in a climbing-interest-rate environment, providing consistent, inflation-resistant returns with the added confidence of sitting higher in the capital structure. Investor demand for Australian property private credit surged in 2024, the appeal being the attractive returns and the added security of loans secured against real assets. In our view, this is driven mostly by a growing population with net migration; onerous bank capital requirements disincentivising their investment in certain loan types; and keen interest from offshore investors in the Australian real estate (and allied) market.

Based on our performance through calendar 2024, where:

  • our originations for the year grew by 73%,
  • our active book grew by 40% to $900m+,
  • we launched a number of new funds,
  • our team grew to 38 (with members in Auckland, Manila, Singapore and Hong Kong, and our CRED Fund registered in Japan),
  • and we have returned more than $1bn in investor principal and interest,

we are cautiously optimistic for the year ahead.

Zagga’s strategy has always concentrated on avoiding high-risk investments, instead focusing on strong fundamentals with solid counterparties, robust security packages, and comfortable asset coverage, in line with our objective of consistently delivering attractive risk-adjusted investment returns.

Whilst the real estate credit market continues to grapple with post-COVID supply constraints amidst soaring demand, our investments are carefully selected to ensure strong market positions and non-cyclical exposure, providing a buffer against economic volatility.

Our investors trust us with their capital to provide them with a consistent, risk-adjusted return, while our borrowers put their faith in our ability to fund their projects without deviation or delay. While there will as always be areas of concern and times when we will need to work extra hard, the private credit market is well-positioned to navigate both the opportunities and challenges of its increasing acceptance as a ‘must have’ asset class. We expect this appetite for real estate private credit to grow and as a leading Australian alternative real estate investment manager, committed to delivering attractive, risk-adjusted investor returns, and tailored private credit solutions, across the capital stack, we look forward to meeting this demand where it meets our requirements.

Thank you to our fantastic team who go above and beyond every day; to our borrowers for trusting us with their projects; and, to our investors across the world for their continued trust and support. Without all of you, there would be no us.

We look forward to navigating the opportunities and challenges of the coming year together.

Why zig when you can Zagga!

  • https://www.asx.com.au/blog/investor-update/2024/understanding-private-credit
  • https://www.zagga.com.au/inflation-slumps-but-rba-postpones-interest-rate-cuts/

This article is for information purposes only. It does not take into account your objectives, financial situation or needs. Any opinion expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article.

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We would like to acknowledge the Traditional Custodians of the lands, seas, and communities in which we provide our services. We would also like to pay our respects to the Elders past, present and emerging, and the continuing cultural influence they have on Australia.

Zagga Market Pty Limited (Australian Credit Licence 490904) ACN 611 662 401 acts as the Servicer of loans acting on behalf of the credit provider, Zagga Investments Pty Limited (AFSL 492354) ACN 615 154 786, trustee of the Zagga Investments Lending Trust

Additional Disclaimer

All portfolio numbers quoted correct as at 30 October 2024.

*Average investor return across the active portfolio as at 30 October 2024.

**Target return is after expenses and any applicable management fees for the year ending 30 June 2024. OCR = Australian Reserve Bank Official Cash Rate.

Past performance is not a reliable indicator of future performance and investments are subject to investment risk, fees and costs. Returns are not guaranteed.

Prospective investors wishing to invest in a Zagga direct investment or a Zagga Fund should fully consider the Information Memorandum, ZFF Fact Sheet and/or ZWF Brochure, available from Zagga, before applying to invest. Investments are subject to risks.

Articles on this website have been prepared by Zagga Investments Pty Limited (AFSL 492354) ACN 615 154 786 (Zagga) for information purposes only. It doesn’t take into account your objectives, financial situation or needs, nor is it intended as a substitute for any accounting, tax or other professional advice, consultation or service. Nothing in this article shall be construed as a solicitation to buy or sell any financial product, or to engage in or refrain from engaging in any transaction.

Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Economic conditions may change.

Any analysis provided in this article is based on information obtained from sources believed to be reliable but Zagga does not make any representation or warranty that it is accurate, complete or up to date. Zagga accepts no obligation to correct or update the information or opinions in it. Any opinions expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article No member of Zagga accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of such information.

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