00:01Private credit has been developing over a number of years, but ultimately it's in its
00:07simplest form. It's a private loan that's been made between two parties. And those details,
00:14I suppose, are not as transparent as maybe some other things. And it's been growing,
00:19but ultimately private credit is in its simple form is lending money. Banks do it. They're
00:25a private credit lender. But over time, as banks have moved out of certain types of lending,
00:30there have been more non-bank financing institutions step in where banks used to do that over many,
00:37many years. So the offering has become quite broad. And so who offers this lending and what
00:44percentage of the lending market does it make up? Well, I know that it's been a major headline
00:50in the marketplace for the last 12 to 24 months. But the reality is that even though it's grown
00:56quickly, it's actually quite a small proportion of the overall lending that happens in the marketplace.
01:01If you take into account lending to homes, to property, to commercial, to businesses,
01:07Australian banks, the big banks are the major lender in the marketplace. So from a system point
01:12of view that I know that people are talking about quite heavily, it's still a relatively small
01:19percentage of the overall loans in the market. Yes, it's growing, but from a system point of view,
01:25it's pretty small. And how strong has that growth been over the past decade?
01:31Oh, it's been very strong. I mean, and I think this is where ASIC are really stepping up their
01:37surveillance. And I think broadly providing the market a better, have to provide a better understanding
01:43of what these investments are and how the terminology, how the language and how they're
01:49understood. It's not a risk-free term deposit. They are investments, loans that are being made into
01:56making for cars, for houses, for property, for businesses. They're all very different. And I think
02:03that's where certainly ASIC are trying to make sure there's a bit more consistency and better practices
02:09across the board that are mandated to make sure that all these providers are following a set of rules.
02:16Yeah. And why are concerns being raised particularly about it now?
02:20We've seen obviously more recently the Baffler development, which was a pretty well-known,
02:28I think for a lot of people in the industry were aware of what was going on there. And obviously
02:32now it's become evident of what's unfolded. And to what extent was private credit involved in that?
02:40Private credit was pretty heavily involved. But I think people don't understand the detail
02:46and not basket all as the same thing. If you look at many of the private credit managers that have
02:52security over their property, and in these circumstances, it's very complicated. You can't
02:57just basket all as one. But many of the good managers that ultimately provided funding to these
03:04loans have been able to now step in, take the properties back, sell them, develop them, whatever
03:09they're doing. So, there are, there will be, I'm sure there is, and I don't know, I don't think
03:13everyone knows the details. There are managers, there are groups that are probably not in the right
03:18area of where they've lent and may lose money. But if they've been investing with good managers and
03:24know what they're doing, hopefully, they'll do their job. Because over long term, many of these
03:30managers, if you show their track record, yes, investments do go wrong. But hopefully,
03:35many of them, they've actually sorted out and provided funding back to investors.
03:39So, taking into account what's happening at the moment, what has been happening,
03:42is there a danger of a contagion developing?
03:48I certainly think there is, but I think you'll see the product structures that are now in place,
03:54and I'm not sure if people have understood this, maybe when they've gone into where they start to
03:59just what they call gate or just limit redemptions, because they need to have a considered approach
04:04to these assets to either get paid back or develop them out. So, there is a risk. The more people
04:09talk
04:10about it, it's a bit like, but I think the biggest concern was, you know, if there's a run on
04:15a bank,
04:15I mean, the size of the capital and private lending is actually dwarfed by the amount of money,
04:20deposits and loans that are with the bank. And people have to remember that, well, if you look
04:25at the detail, you know, every year banks are probably writing off three or four
04:28billions of dollars in bad debts and loans. So, I think the practices, I think when we go
04:33through a high growth industry, the practices, the principles, the rules and people learning
04:38and understanding it better will just hopefully get better and better and have a better outcome.
04:42And so, how does Australia's regulation of private credit compare to other countries and
04:47does it need to be tightened?
04:51Yes, if you look at, and I think ASIC have been very clear on this, is that probably maybe
04:55they've released some standards that they want managers to get up to speed to. They've actually
05:01been pretty positive on some groups in saying their standards have been good. But from a relative
05:06point of view, to the US, maybe Singapore and other countries, we are seen as probably, I think,
05:13well south of some of those things. So, there is certainly an area, either through ASIC or through
05:18the industry, has to improve a lot of those areas to get up to better on transparency, better
05:25understanding. You know, as a country rank, I think we're quite low, although our banking institution,
05:32which is obviously regulated through APRA, is seen as one of the best in the world. So, we have some
05:38great, I think, standards and industries and rules that already exist. I think we just probably need
05:44to be, you know, fine tuning them or repositioning them or providing it a better way for people to
05:49understand what they're investing in.
Comments