Industry experts have predicted a surge in the private credit market in Australia.

According to a new report from Herbert Smith Freehills (HSF), more than 90 per cent of senior leaders across 10 global and national private credit firms expect continued growth in the corporate debt market in Australia and Asia over the next decade. 50 per cent anticipate this growth to be “significant”.

The real estate and consumer sectors were identified as the most attractive for investment, while borrower perceptions of high lending costs was identified as a top barrier.

The survey also found that there is no strong desire for regulatory reform in private credit, with a 50/50 split amongst respondents when asked if reform was required.

64 per cent of respondents view private credit as essential in filling the lending gaps left by financial institutions, while 21 per cent see private credit as forming part of financial institutions’ lending strategies.

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Flexible terms and a higher risk tolerance were identified as the key benefits of private credit lending.

“The number of private credit funds in Australia has grown significantly, increasing competition for new deals,” said HSF Finance partner Martin MacDonald.

“Funds are adapting to this competition by diversifying their deal types, securing a steady pipeline of opportunities. We expect continued growth for credit funds as borrowers and sponsors recognise the advantages of private credit, such as flexible solutions and speed of execution, which were highlighted in our survey.

“Emphasising these benefits can help overcome perceptions of high lending costs and fuel sector growth.”

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Private credit lenders said the most attractive private deal size for their organisation is between US$101m (£79.2m) and US$500m, with 70 per cent indicating they are expecting to increase their target deal size in the next five years.

HSF Finance partner Phillip McMahon said the expected increase in deal size activity is further indication of the anticipated in growth in private debt investments in Australia.

“Private credit already plays an important role in filling gaps where traditional lenders may not be prepared to provide sought after capital,” said McMahon.

“It looks like that role will likely increase over the next five to 10 years with private credit becoming increasingly important in larger deals, either as a sole source of funding or as part of the capital structure as an option for traditional lenders to mitigate or share risk.”

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