EG’s philosophy is to constantly explore opportunities that would generate great returns for our investors.
As traditional banks tighten on lending due to the regulatory environment, borrowers are forced to look beyond the big four banks and turn to alternative lenders.
The current economic market signifies signs of ongoing tightening on lending by the banks, indicating the potential for further growth across the non-bank lending market.
That’s why EG entered a joint venture with Msquared Capital, allowing our wholesale investors and family offices to diversify their funds and capitalise from the private debt market.
In the current economic climate, private debt is proving to be an investment megatrend.
What is private debt (or private credit)?
The Australian financial market encompasses alternative lenders to banks, they are registered financial corporations that offer loans to borrowers.
Generally, non-bank lenders provide short-term loans to borrowers for the acquisition of assets or further investment.
These loans may be provided by syndicating a pool of investor funds, which are packaged up as capital products to borrowers with risk-adjusted returns.
It is an attractive investment due to the capital products being structured to ensure a fixed income even during a volatile market. The possible risk of a non-payment is managed by securing investor funds against an asset.
History of private debt
The regulatory changes experienced by Australian banks have helped pave the way for the rapid growth of the non-bank lending market.
The global financial crisis and the royal banking commission introduced new rules for the big four banks. This resulted in traditional banks cutting back on lending and favouring a lower loan-to-value ratio, making it more difficult for borrowers. Challenging even for those who are asset rich.
The changes formed a space for non-bank lenders, allowing them to provide borrowers with an alternative source of capital.
The ideal environment was created to propel the growth of the private debt market across Australia.
Today, non-bank lenders offer a competitive proposition compared to traditional lenders due to the flexible terms offered to suit the circumstances of the borrower, combined with the speed to access funds.
Private debt market globally vs. Australia
According to the Reserve Banks of Australia, non-bank lenders now account for around 5 per cent of Australia’s financial system.
In 2022, figures show that lending by the non-bank market was growing at a faster rate than banks. The trajectory indicates the potential for Australia to follow in the footsteps of our US and European counterparts.
Non-bank capital products fund approximately 70 per cent of commercial mortgages in the US, 48 per cent within Europe, but only 8 per cent in Australia.
What will be achieved with EG?
EG’s private debt offering allows wholesale investors and family offices to invest in two key capital products for Msquared Capital borrowers. The first product is a bridging facility for high-net-worth residential homes in Sydney’s eastern suburbs and lower north shore. The second product is for industrial real estate within strategic locations along the eastern seaboard that show potential for further growth. Whilst this is our starting position, we will expand into other segments of the private credit markets over time.
Our PRISMS platform is utilised to assist with evaluating risks and credit quality, providing additional protection. EG’s team and equity lens in evaluating opportunities stand to benefit investors by providing a focused segment of the private credit market and an ability to manage workouts should these arise.
Loans offered to borrowers are structured to give borrowers flexibility whilst generating great consistent returns for our investors. The products are also secured as first-registered mortgages and personal guarantees to safeguard investors’ funds.
We expect ongoing opportunities to arise for our investors to take part in the new private debt megatrend.