Roushana Sjahsam, a senior board adviser, Asean, at investment firm Zagga, has shared an opinion piece with FinanceAsia. Zagga is a real estate private credit manager investing in Australian commercial property opportunities.
Sjahsam (pictured) wrote: The convergence of global trade tensions, escalating military conflicts, and geopolitical uncertainty has created an increasingly turbulent investment environment. Investors across the Asean region are adopting defensive strategies and turning to safe haven asset classes, like private credit, which can offer stability amidst volatility.
Australian real estate private credit has emerged as a particularly compelling choice, as investors recognise the growing potential within their own region for capital preservation and reliable returns.
As the world grapples with heightened political and economic uncertainty, income generation and portfolio construction have become increasingly complex, even for the most experienced investors. For defensive, yield-seeking investors, private credit has emerged as a safe haven asset class, favoured for its diversification benefits, stable income, and ability to bolster portfolio resilience.
Globally, private credit is set to reach a record $2.8 trillion by 2028. While Asean capital has traditionally been directed towards the US or Europe, Australia is quickly gaining ground. Regional investors are now recognising that there is a thriving private credit market on their doorstep, particularly in real estate.
The Australian private credit market has now surpassed A$200 billion ($130 billion) in assets under management (AUM), according to Alvarez & Marsal Research Report in 2024.
Often cited for its stable regulatory environment, transparent legal system, and resilient, demand-driven economy, Australia is a well-regarded investment destination. The property market is even more compelling. Boasting 20 years of sustained growth, the current nationwide housing shortage and booming population are providing unprecedented investment opportunities.
This momentum is set to continue, accelerated by the pullback from traditional lenders from the construction and development sector due to regulatory and capital constraints.
Despite strong tailwinds and growing investor interest, prevailing misconceptions continue to deter investors from realising the full potential of the private credit opportunity. Most notably, we see four common complaints which limit investor participation in this asset class.
Adrressing concerns private credit is opaque and risky
The term “private” may suggest limited transparency. However, quality investment managers place a strong emphasis on disclosure. Investors can select their preferred level of exposure - whether via a fund structure or on a deal-by-deal basis – and should expect visibility over relevant loan details.
Many investors believe that private credit serves distressed borrowers or acts as a ‘lender of last resort’. However, investment-grade borrowers choose private credit for its bespoke loan terms, commercial flexibility, and to gain access to the knowledge and expertise of a specialist manager.
Furthermore, in Australia, loan-to-value ratios (LVRs) are generally conservative, often capped at 70% for senior debt, with bank lending still representing the dominant source of funding. Comparatively, in the US and Europe, where the private credit market is larger and more established, LVRs can be greater than 80%.
A quality manager will often have even more stringent requirements. For example, at Zagga, we typically lend at a LVR of less than 65% and require borrowers to have robust industry experience and a proven track record.
Addressing concerns Australia is too small and you need global diversification
While global diversification can play a role in portfolio construction, Australia’s private credit market offers depth, stability, and compelling risk-adjusted returns without the added complexity of broad offshore exposure. In Australia, the local private credit market is experiencing year-on-year growth of more than 6%. This trajectory is expected to continue, with real estate a key focus area.
Today, A$85 billion is allocated to commercial real estate-related loans — representing approximately 17% of the total commercial real estate lending market.
Further market growth is anticipated for Australian real estate private credit in the near-term. The domestic market benefits from a robust legal framework, transparent regulation, and conservative lending practices, compared with many of its overseas counterparties. Additionally, Australia’s commercial real estate debt sector provides a steady pipeline of well-structured lending opportunities backed by quality collateral.
For many investors, the ability to conduct due diligence locally, lend in a single currency, and operate within a familiar legal and regulatory environment offers tangible advantages over global allocations, where political, currency, and jurisdictional risks can be more pronounced.
Addressing concerns thar lower interest rates = lower returns
In private credit, returns are influenced by more than just the base interest rate. Loan margins, structuring, borrower quality, and risk management all play a significant role in determining performance. Well-managed portfolios can maintain attractive risk-adjusted returns through disciplined loan origination, conservative loan-to-value ratios, and selective borrower criteria — regardless of shifts in the cash rate.
In Australia, many private credit loans are structured with floating interest rates, meaning returns move with the prevailing cash rate. In practice, this means that while total returns may vary with rate movements, the margin above the cash rate remains constant. Zagga’s flagship fund, for example, targets a return of 500 basis points above the Reserve Bank of Australia (RBA) cash rate, regardless of the interest rate cycle.
Comparatively, fixed-rate bonds may see capital value erosion when rates rise. Instead, private credit maintains its income margin. This helps to smooth returns across cycles and offers a defensive buffer in volatile periods.
Addressing concerns thar private credit is illiquid and locks up capital for too long
While private credit is less liquid than listed assets, Australian real estate private credit typically involves shorter loan terms — often between six and 24 months — compared with other private market investments. Well-structured loans are aligned to project milestones and supported by clear exit strategies, such as property sales or refinancing. This provides a defined pathway for capital repayment.
Importantly, there is an illiquidity premium in private credit — investors are compensated for reduced liquidity with higher returns than those typically available from liquid funds or cash. While public markets may offer daily liquidity, this often comes at a price in the form of greater volatility and less predictable income.
Real estate private credit investments are also often structured to deliver regular interest distributions, providing predictable cash flow during the investment term. This enables investors to benefit from the stability, income, and return premium of private credit without excessive or unnecessary capital lock-up periods.
Private credit is no longer a niche - it’s a strategic allocation for sophisticated investors and a core part of a well-diversified portfolio. Australian real estate private credit offers a particularly compelling proposition for Asean capital, backed by robust economic fundamentals, quality borrowers, and unprecedented sector tailwinds.
As investor demand grows, strong due diligence and robust manager selection will be key to overcoming myths and unlocking the full potential of this thriving asset class – a proven antithesis to the challenges of today’s investment environment.
The views written don’t necessarily represent the views of FA.
