Wednesday 05 April 2023
We note the recent failure of another two regional builders, one a home builder, the other a school builder. As with the recent collapses of Credit Suisse (now merged into UBS) and Silicon Valley Bank, it is important to note that these failures are mostly confined to the specific circumstances of each business, rather than the market at large. We should bear in mind that banks, per se, are well capitalised, and in Australia, especially so.
For us in Australia, inflation is the BIG issue, and each of us is now seeing and feeling the effects of that. What is clear is the consequent effect of these and other developments on investor sentiment and the general nervousness and caution that now prevail.
Having just returned from the Private Debt Investor Conference in Singapore, a clear message is that private credit is increasingly viewed as a strong alternative investment class, certainly judging by the proliferation of credit funds worldwide. One of the reasons is its non-correlation to equities markets, and unlike bonds (where yields reduce as interest rates increase), private credit can deliver an annuitised return notwithstanding prevailing investment conditions.
Interestingly, Australia is attracting significant attention from overseas investors:
- stable democracy
- strong legal system
- ease of enforcement
- sophisticated economy
- deep market.
The Conference, and my visit generally, certainly confirmed the fact that Australia has lots to offer to CRED investors and that Zagga has carved its niche amongst the Australian non-bank lenders and alternative asset managers.
As is the case across the construction market generally, we still have the COVID hangover in the form of delayed completions, skills shortages, materials shortages, and price increases; in NSW, we have the added requirement of sign-off by the Building Commissioner of all construction projects – all of which have resulted in a delay in construction projects completing and returning funds to lenders.
Given all of these factors:
- our book remains well positioned
- our originations and new loans are being considered as carefully as always
- our counterparties are high-quality
- and our security properties are retaining value.
It is also worth noting the positives: ASIAN investors are gearing up for increased investment into Australian CRED as they can see that their exposures are well protected, as well as the opportunity down the road; despite the predictions, we have not hit the property cliff and, in fact, prices are rising; 2023 will see the largest migratory intake to date, with housing supply predicted to be 100,000 dwelling short of demand by 2027; and there are signs that rates increases, if not at their peak, are close to it.
Please feel free to ring any member of the Zagga team for a further discussion or information.
~Alan Greenstein
CEO & Co-Founder
