The ‘food critic’ and the ‘chef’: Private credit served up

Private credit is giving institutional investors a level of control and selection rarely seen in liquid markets, according to Nehemiah Richardson, CEO of Pengana Credit.

Private credit is giving institutional investors a level of control and selection rarely seen in liquid markets, according to Nehemiah Richardson, CEO of Pengana Credit.

He compares traditional defensive investments to being a “food critic,” who are forced to react to whatever the market serves them, while private credit investors are the “chefs,” handpicking their own ingredients and setting the terms of exposure.

“You’ve got to choose the ingredients, you have to ask more questions, set terms and conditions. This unpredictable behavior you see in the traded markets is only increasing, and therefore this makes sense if you want defense to be looking at the private credit asset class,” Richardson told InvestorDaily.

“The depth and breadth of global private credit provides the grounds for a highly diversified approach which can spread risk and manage liquidity.”

He cautioned diversification is limited, however, in Australia as local opportunities remain tightly linked to the domestic economy and concentrated in commercial property.

“The local market does not have the capacity for true diversification across geography, strategy and industry. You really need to diversify across everything, because the opportunity set is more limited here,” he said.

“Global private credit is not constrained in its ability to deploy capital in the same way that the local private credit market can be, where the opportunity is limited to a narrower set of opportunities, particularly commercial real estate.”

Richardson emphasised that it’s not just diversification, but the depth of quality that determines its effectiveness within a portfolio. “There is great potential to diversify with quality because private credit is a dominant form of lending to mid-market corporates in the USA and Europe.

“For investors, we believe the most attractive segment of the market provides access to bilateral loans with enforceable protections, which are held to maturity and do not compete with traded private credit.”

Nevertheless, he acknowledged Australia has developed a strong pool of capable managers and the regulatory scrutiny of the private credit market is a positive step for the industry. Last year, ASIC conducted a thematic surveillance of several private credit funds as well as a wider review of the sector.

“I think when [the regulators] look at the sector, they’re not saying that private credit is a bad thing or product markets themselves are bad things. I think the message is that we have a sector in Australia that’s grown really quickly.

“It doesn’t have the same kind of history as you might find in the more mature markets of the US and Europe. What happens with that is, you have some uneven standards, and when a lot of the products will touch retail investors, they’re really trying to make sure that there’s consistent standards across industry,” he told InvestorDaily.

Global private credit
The growth trajectory for global private credit remains robust with Preqin forecasting the market will reach US$2.7 trillion globally by 2027, underpinned by favourable structural supply and demand dynamics.

“We expect growth to continue as structural supply and demand dynamics continue to work in private credit’s favour. It has been driven by a structural withdrawal of capital as regulations have prevented banks from holding too many long-term assets with short-term liabilities.”

Since the Global Financial Crisis (GFC), banks have pulled back from longer-dated lending, creating a structural gap in the market that private credit has stepped in to fill and, according to Richardson, this supply-demand imbalance is where investors can capture a meaningful premium for credit.

“Where we participate in private credit is where we see the real structural shift in the US and Europe, where banks have stepped back from parts of the longer-dated lending market,” he said. For institutional investors, this shift offers access to a resilient asset class less exposed to the volatility of traditional fixed income markets.

However, geopolitical uncertainty is reshaping risk dynamics across global markets, affecting inflation, energy prices, and supply chain stability. In response, private credit portfolios are increasingly designed to mitigate concentration risk and ensure structural protections such as seniority and covenants.

“Geopolitics matters a lot because it actually directly kind of feeds the things that might happen with inflation, with energy prices, with supply chain and risk premium more generally, and I think that is what causes dispersion. In public markets, that just means more winners and losers. From a private credit perspective, you’re trying to avoid hidden concentrations, and you’re trying to be properly diversified.”

View the original InvestorDaily article here.

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