“Because there’s such strong demand for this capital, the spreads – or returns – between what the banks can lend out and what private credit managers can get, is huge,” Pillemer said.
While it can carry higher risks than assets such as bonds, Pillemer said private credit could help diversify portfolios because it had a low correlation with listed equities and fixed income.
Domestically, private credit is concentrated in the property space, but Pillemer said Pengana would focus on other sectors and look globally.
“We have very little, if any, property exposure,” he said. “We invest with various managers who operate in different sectors, and it could be anywhere from retail to financial services. Most of the exposure is in the US, but there’s also a fair amount in Europe, with a lot of industrial companies.”
Pillemer said investors in Pengana’s private credit vehicles would get exposure to the fund’s entire portfolio, comprising about 400 exposures.
Despite the prospect of a recession, Pillemer said he was confident in the portfolio’s ability to deliver returns because it was put together with the recessionary risk in mind.
“I think we’ve got a real advantage because we’ve been investing in the portfolio for the last few months, knowing that there’s a strong possibility of a recession,” he said. “We’ve chosen businesses to lend to that have predictable and stable cash flows, rather than cyclical businesses, whereas if you made loans three or four years ago, or even just after COVID, you might have been overly bullish in evaluating companies.”
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