Most Australians are more exposed than they think
Imagine you’re loading animals onto a boat. You’ve got a few sheep, some cattle, a couple of horses. You think you’re diversified - after all, they’re different animals. But they’re all on the same boat. And when a big wave hits, it doesn’t matter how many species you brought. Everything goes overboard together.
This is a surprisingly accurate picture of how most Australians invest in private credit.
You might own your home. Your super is probably invested mostly in the stock market. Maybe you have an investment property or two if you’re lucky. On the surface it looks like a spread. In reality, almost everything you own moves with the Australian economy, or market sentiment. When Australia catches a cold, your property, your super and your shares all sneeze at the same time.
Australia represents between 1 and 3% of global financial markets1. Yet most Australian investors have the vast majority of their money concentrated in that small percentage. The rest of the world – the other 97+% – barely gets a look in.
This isn’t a criticism. It’s just how most people end up investing. You buy what you know, you invest where you live, and before long your entire financial life is tied to the fortunes of one relatively small economy on one side of the world.
The solution isn’t complicated. It’s diversification – but real diversification. Not just owning different things, but owning things that behave differently from each other. Investments that aren’t all subject to the same wave.
Global private credit is one example of an asset class with the potential to provide added diversification to your investments. The fastest growing asset class globally over the last 15 years, it’s a sector worth over $1.7 trillion2, spread across thousands of companies around the world. In the case of TermPlus, we specifically refer to mid-market businesses primarily in the US and EU, in a wide variety of sectors including healthcare, technology, infrastructure and manufacturing. When Australian property softens or the ASX dips, the global private credit market shows very little correlation as they are influenced by entirely different economic forces, in entirely different parts of the world.
The question isn’t whether you should be investing – it’s whether your investments are as diversified as you think.
1 MLC Asset Management, “The case for global shares in investor portfolios”, September, 2021.
2 U.S. Federal Reserve, “Private Credit: Characteristics and Risks,” February 23, 2024. The Fed cites Preqin for data on private debt.
