Falling Deposit Rates Making Private Credit Investments More Appealing
With the start of the New Year, many are trying to stick to their New Year’s resolutions. Among the most common resolutions is being smarter with money and a big part of this is investing. But the big question many get stuck on is ‘where should I invest?’
Term deposits have been a popular choice, especially for beginner investors because they are easy to understand, and are deemed lower-risk investments since these are managed by traditional finance institutions like banks. However, as banks have become more and more conservative with their rates, there is added motivation to look at other options that offer better returns.
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Among the investment types gaining traction are private credit investments due to their passive nature and attractive returns.
Term Deposit Trends
According to the Central Bank’s data, the average advertised interest rates for three-year term deposit accounts have dipped from 4.0% at the start of 2024 to 3.35% by October. For many people, locking in their deposit for at least three years to make a little over 3% isn’t overly attractive.
Rising demand for private credit investments
Although investing in private credit is considered higher risk than a term deposit, the targeted returns are convincing people to look closer at what is involved. The average ROI for is usually 4-5% higher than the cash rate set by the Reserve Bank of Australia. And for many of these accounts, the investor receives regular distributions and can access their funds if required, which are attractive incentives compared to a regular term-deposit.
Moreover, even the largest superannuation funds in the country are starting to invest more in private credit. If the big players are investing more on an investment type, then it increases the confidence of wholesale and retail investors to follow suit.
How private credit investment works
Private credit investing involves an investor or a group of investors lending their funds to borrowers (usually businesses needing short term finance) and the interest paid on the loan is distributed to the investor.
Private credit investments can be through a fund that is pooled together from various investors which lends funds to a portfolio of borrowers. This type of investment can also be called a pooled mortgage fund. In some cases, an investor can lend directly to a borrower, and this setup is called direct lending investments (or peer-to-peer lending).
There are pros and cons for each set up. However, the main difference is that direct lending is riskier due to the ‘all eggs in one basket’ approach whereas pooled funds are diversified across multiple loans which are less risky.
Seasoned investors who want more control over their portfolio might prefer direct lending while investors who are time-poor and are looking for passive income might find pooled mortgage funds more attractive.
About APG’s Pooled Fund: PMAC Trust
The PMAC Trust is a pooled mortgage fund managed by APG’s expert team responsible for conducting due diligence, sourcing borrowers, and managing the loan portfolio. The fund is used to support numerous SMEs seeking finance for various business needs such as working capital, equipment purchase, establishment finance, debt consolidation, construction finance and flip finance among others.
A key advantage of a pooled mortgage fund is its “set-and-forget” nature, making it an ideal choice for investors seeking a passive income stream. At APG, we actively manage the fund so investors can enjoy a truly passive investment experience.
The fund is open to all investors and offers passive income through quarterly distributions. Investors can also participate in our Distribution Reinvestment Plan, allowing distributions to be reinvested quarterly to compound returns.
For more details about the fund or the Distribution Reinvestment Plan, you can book a call with our Investor Relations team, who are happy to assist with any inquiries.
The information in this article is general and does not replace professional advice. Always seek professional guidance tailored to your specific situation to determine which investments is most beneficial for you.
For any questions about investing in private mortgages, feel free to email us at [email protected] or reach out via our Contact Page.
If you have any questions about investing in private mortgages then please send us a message via our Contact Page.
