Australian companies seeking to borrow funds have traditionally turned to the major banks for their funding, with only a small community of alternative lenders.
But regulatory changes in recent years have imposed more onerous capital requirements on the banks and they have responded by limiting lending to some markets and changing the way they are lending to others.
These shifts in the lending landscape have opened the way for alternative (non-bank) lenders to enter the market. Non-bank lenders such as superannuation funds are stepping in to fill the gap created by the reduction in bank lending.
We are one of a few super funds who have established teams to lend directly to Australian companies, supporting medium to large Australian businesses grow and expand their businesses.
Under our direct lending program, we provide a loan directly to a borrower without the involvement of a credit manager.
The transaction is managed by our specialist credit income team, which carries out the necessary due diligence to choose the companies we lend money to.
This is a great opportunity to get in on the ground floor of a structural change in the Australian lending landscape. It’s also an opportunity to help Australian companies' while generating relatively stable and secure income for members.
The direct lending team has now lent to 10 Australian companies, committing over A$600 million. Borrowers are from many industries and include Harris Farm Markets and Guardian Early Learning Group.
Guardian Early Learning Group: Australian childcare business who own and operate 100+ childcare and early learning centres, predominantly located in Sydney, Melbourne and Brisbane.
Harris Farm Markets: A family owned, NSW-centric chain of high-end grocery stores specialising in fresh fruit and vegetables and gourmet products.
Lending directly, rather than through a specialist investment manager, will help us reduce investment fees over time because there are no management fees and the transaction costs are generally borne by the borrower.
Direct lending is part of the credit income asset class within our It forms part of our income (or defensive) asset allocation along with cash and fixed income.
Compared to traditional fixed income investments like Australian government bonds, the loans within our credit income portfolio tend to generate higher returns because borrowers are often private companies with higher credit risk profiles.
We are planning to expand our direct lending activity in Australia and expect it to provide members stable and secure returns with low interest rate volatility as the loans are predominantly floating rate instruments.