How TermPlus Manages Global Credit Portfolio Quality on Behalf of SMSF Investors

As more SMSF trustees explore global private credit as part of their fixed income and alternative income allocation, one question naturally follows: how is the quality of the underlying credit portfolio managed?

Global private credit is a broad and diverse asset class, and not all private credit is equal. The difference between well-managed, senior-secured bilateral loans to mid-market companies and more complex, covenant-lite, or lower quality structures can be the difference between consistent income and meaningful capital loss. For SMSF trustees who have invested in or are evaluating TermPlus Fixed Term Investment Accounts, understanding what sits behind the target monthly income is an essential part of informed decision-making.

This article sets out how TermPlus, through Pengana Capital Group and its partnership with Mercer, approaches global credit portfolio quality and what that means in practice for SMSF investors.

Not All Private Credit Is the Same 

A foundational principle underpinning TermPlus’s approach is that global private credit and Australian private credit are fundamentally different markets, and that even within the much larger global private credit sector, substantial quality differences exist.

In Australia, banks provide around 90% of corporate credit, and much of the domestic private credit market sits in areas where banks have limited risk appetite including commercial property and subordinated positions in structured finance vehicles, many of which have not yet been tested through a full credit cycle. The concentration of the domestic private credit market can also present an unintended concentration risk to portfolio construction, not only within the asset class, but even within portfolios which are correlated to the domestic economy through investments in listed equities and direct property ownership.

Global private credit, particularly in the United States and Europe, operates in a structurally different environment. Banks have meaningfully withdrawn from corporate lending in these markets since the GFC, and private credit managers have stepped in to fill that gap. Today, approximately 85% of mid-market corporate lending in the US is done by private credit investment managers rather than banks. This is an established, mature, highly diversified, and institutionally accepted part of the global financial system.

However, the rapid growth of the asset class has also introduced more complex, lower quality strategies into the market. There is growing evidence of more complex loan products and covenant-lite strategies that may reduce underwriting standards. For SMSF trustees, this makes the quality management layer sitting above the underlying loans a critical consideration. 

The TermPlus Portfolio Management Structure 

TermPlus is issued by Pengana Capital Limited, which acts as the investment manager through its Pengana Credit division. The portfolio management approach operates through a multi-manager, multi-strategy structure, with Mercer which is one of the world’s largest institutional investment consulting firms providing global access, ongoing manager selection, due diligence, evaluation, and monitoring across the underlying private credit managers.

This structure places multiple layers of professional oversight between the SMSF investor (TermPlus customer) and the underlying loans, each with a specific quality management function:

• PenganaCredit sets the overall portfolio strategy, asset allocation parameters, and risk management framework.
• Mercer selects,monitors, and evaluates the private credit sub-managers based on their governance, operational capability, performance history, default rates, recovery rates, and underwriting capabilities.
• Over27 individual private credit managers execute loans across more than 4,500 underlying loans in the portfolio.

The result is a portfolio that TermPlus customers, and SMSF trustees, access through a single, straightforward Fixed Term Investment Account, while the complexity of manager selection, quality control, and ongoing monitoring is managed institutionally on their behalf.

Two Pillars of Credit Portfolio Quality 

TermPlus’s approach to credit portfolio quality is built around two pillars that are central to its investment philosophy: simplicity and diversification.

Pillar One: Simplicity Through Bilateral Loan Focus 

The TermPlus portfolio is anchored in bilateral loans which are  the most direct and structurally transparent form of private credit. A bilateral loan is simply a direct contractual lending arrangement between a borrower and an investor, without the complexity of pooled vehicles, synthetic structures, or layered financial engineering.

Well-underwritten bilateral loans carry several structural protections that are fundamental to quality management:

• Senior secured status: loans sit at the top of the borrower’s capital structure, giving lenders priority over assets and cash flowsin the event of default
• Conservative loan-to-value ratios: the portfolio targets LVRs typically between 30% and 50%, providing a meaningful equity buffer below the lender’s position
• Strong covenant structures: individually negotiated terms give lenders the right to compel corrective actions from borrowers before problems escalate
• Information rights: direct lenders receive ongoing financial reporting from borrowers, enabling early identification of deteriorating credit conditions

This focus on simplicity is a deliberate quality filter. By avoiding the more complex, covenant-lite, and engineered structures that have grown in the private credit market, the portfolio is oriented toward loan structures with clear, time-tested risk management characteristics.

Pillar Two: Diversification as a Quality Control Mechanism 

Diversification is described in TermPlus’s investment philosophy as the greatest free lunch available in global private credit. Within the portfolio, this diversification operates across multiple dimensions:

• Manager diversification: more than27 private credit managers operate within the portfolio, each with their own origination relationships, sector specialisations, and deal pipelines
• Loan diversification: over 4,500 individual loans across the portfolio means no single borrower default creates a material impact
• Geographic diversification: exposure primarily to mid-market borrowers in the US and Europe, the two deepest and most mature private credit markets globally
• Sector diversification: a focus on defensive, non-cyclical industriesreduces the portfolio’s sensitivity to economic downturns

For SMSF investors, this scale of diversification would be effectively unachievable through direct investment. Even institutional investors with millions to deploy would find it difficult to replicate the breadth of manager relationships and loan access that the TermPlus structure provides.

Mercer’s Role in Ongoing Manager Quality Management 

Within the TermPlus structure, Mercer’s role goes beyond initial manager selection. It encompasses ongoing evaluation against consistent quality criteria, covering:

• Performancetrack record across full credit cycles, not just recent benign market conditions
• Historical default rates and recovery outcomes at the loan level
• Sourcing and underwriting capabilities, including the quality and exclusivity of a manager’s deal origination relationships
• Portfolio management discipline and alignment of interests between the manager and investors
• Operational infrastructure and governance, assessed through Mercer’s Sentinel operational due diligence process

This evaluation framework is applied both at initial appointment and on a continuous monitoring basis. This dynamic quality oversight layer is a meaningful feature of the structure that individual SMSF trustees can leverage through TermPlus.

Currency Risk Management 

Because the underlying loans are denominated predominantly in US dollars and euros, currency exposure is an inherent feature of investing in global private credit. Within the TermPlusstructure, the portfolio is hedged to manage this foreign currency risk, targeting consistent AUD-denominated returns for Australian investors.

For SMSF trustees, this means the target monthly income distributions are not exposed to day-to-day AUD/USD or AUD/EUR exchange rate movements. The hedging program is managed as part of the overall portfolio construction, rather than being left as an unmanaged variable.

The Support Account: An Additional Layer of Protection 

Beyond the structural protections built into the underlying loans, and the portfolio as a whole, TermPlus incorporates an additional mechanism specifically designed to support income reliability and capital stability for account holders: the Support Account.

Pengana Capital Group invests its own capital into this Support Account, creating a co-investment structure where the fund manager’s interests are directly aligned with those of TermPluscustomers. The account provides three layers of protection designed to buffer income distributions and capital from any potential for short-term portfolio volatility.

This type of structural protection where the manager places its own capital at risk alongside investors is a meaningful form of quality commitment. It reflects the confidence TermPlus has in the underlying portfolio management processes, and the group’s true customer-first approach to delivering high quality fixed term accounts.

What This Means for SMSF Due Diligence 

When SMSF trustees evaluate fixed term products underpinned by global private credit, the quality management framework sitting above the underlying loans is as important as the target return. Key questions to assess include:

• Is the underlying credit portfolio focused on senior secured, simple bilateral loans or does ittarget complex, covenant-lite, or subordinated structures?
• Isthere institutional-grade manager selection and ongoing monitoring, or does the structure rely on a single manager or undisclosed process?
• Is the portfolio sufficiently diversified across managers, loans, geographies, and sectors?
• Is currency risk managed, and does the return structure reflect net AUD returns after hedging costs?
• Are there structural protectionsin place, such as a support or reserve account that provide a buffer between underlying portfolio performance and investor distributions?

The TermPlus structure has been designed with each of these considerations in mind. The combination of Pengana’s investment management, Mercer’s institutional due diligence, a portfolio of 4,500+ loans, active currency hedging, and the Support Account represents a multi-layered approach to portfolio quality management delivered in a format accessible to SMSF investors from as little as $2,000.

Institutional Quality Management, SMSF Accessible 

For most SMSF trustees, building a position in global private credit with 27+ managers, 4,500+ loans, institutional-grade due diligence, and active currency hedging would be neither practical nor accessible. The TermPlus Fixed Term Investment Account structure is designed to make that institutional quality accessible through a single, straightforward account.

Quality counts in global private credit. The difference between well-managed, defensive, diversified portfolios and single-strategy, complex or lower quality structures is not just a matter of degree; it is a fundamental difference in risk profile. Understanding how that quality is managed, and who is responsible for it, is an essential part of SMSF trustee due diligence.