1 00:00:05,790 --> 00:00:08,070 Sean Aylmer: Welcome to the Fear and Greed business interview. I'm Sean 2 00:00:08,340 --> 00:00:11,700 Sean Aylmer: Aylmer. In investor circles, private credit seems to be the 3 00:00:11,700 --> 00:00:14,609 Sean Aylmer: topic du jour. It's really taken off as an asset 4 00:00:14,610 --> 00:00:17,129 Sean Aylmer: class recently, but I reckon many people would be a 5 00:00:17,129 --> 00:00:19,738 Sean Aylmer: little unclear as to what it is, how it works, 6 00:00:19,770 --> 00:00:22,590 Sean Aylmer: and what it means for investors. So today we're getting 7 00:00:22,590 --> 00:00:25,980 Sean Aylmer: a 101 on private credit, the benefits, the risks, the 8 00:00:25,980 --> 00:00:29,039 Sean Aylmer: opportunities, that type of thing. Remember, this is general information 9 00:00:29,040 --> 00:00:31,619 Sean Aylmer: only and you should seek professional advice before making any 10 00:00:31,620 --> 00:00:35,549 Sean Aylmer: investment decision. David Ingram is the co- founder and CEO 11 00:00:35,549 --> 00:00:40,019 Sean Aylmer: of CrowdProperty Australia. CrowdProperty Australia, a great supporter of this 12 00:00:40,019 --> 00:00:41,880 Sean Aylmer: podcast. David, welcome to Fear and Greed. 13 00:00:42,390 --> 00:00:43,590 David Ingram: Hi, Sean. Great to be here. 14 00:00:44,370 --> 00:00:48,150 Sean Aylmer: So let's start at the very beginning. What is private credit? 15 00:00:48,570 --> 00:00:51,000 David Ingram: Oh, private credit is a great way of investing to 16 00:00:51,000 --> 00:00:53,819 David Ingram: get a fixed income without the volatility of other asset 17 00:00:53,820 --> 00:00:56,640 David Ingram: classes like shares. And you can get great returns at 18 00:00:56,640 --> 00:00:59,310 David Ingram: the moment as high as 10%. So they're attracting a 19 00:00:59,310 --> 00:01:02,760 David Ingram: lot of interest and that compares with what you might 20 00:01:02,760 --> 00:01:05,580 David Ingram: think of a traditional fixed income benchmark is perhaps the 21 00:01:05,580 --> 00:01:10,319 David Ingram: Australian ten- year bond, which peaked around 4. 95%. So 22 00:01:10,319 --> 00:01:12,061 David Ingram: some really good returns in this space at the moment. 23 00:01:12,060 --> 00:01:16,020 Sean Aylmer: Okay, so when we're talking about private credit, though, an 24 00:01:16,020 --> 00:01:18,899 Sean Aylmer: easy way, or an easier way to think, so it's 25 00:01:18,900 --> 00:01:22,619 Sean Aylmer: loans that aren't from banks. Who is it, who's doing 26 00:01:22,620 --> 00:01:23,100 Sean Aylmer: the lending? 27 00:01:23,759 --> 00:01:26,700 David Ingram: Yeah, I think private credit can be confusing for people, 28 00:01:26,700 --> 00:01:28,650 David Ingram: so it might be worth tackling what credit means for 29 00:01:28,650 --> 00:01:33,270 David Ingram: people. It sometimes used interchangeably with debt funds. Debt can 30 00:01:33,270 --> 00:01:36,569 David Ingram: be seen as a negative connotation for investors, but typically 31 00:01:36,569 --> 00:01:39,510 David Ingram: it's thinking of investing as thinking of yourself as a 32 00:01:39,510 --> 00:01:43,530 David Ingram: lender, and you're lending to small businesses or corporations helping 33 00:01:43,530 --> 00:01:46,260 David Ingram: them grow or manage their cash fund. At CrowdProperty, we're 34 00:01:46,260 --> 00:01:49,379 David Ingram: a specialist investment manager and we facilitate lending money to 35 00:01:49,380 --> 00:01:53,250 David Ingram: experienced property developers to help them build more Australian homes. 36 00:01:53,970 --> 00:01:57,510 Sean Aylmer: Okay. So in the case of CrowdProperty, I, as an 37 00:01:57,510 --> 00:02:02,670 Sean Aylmer: individual, can use my money with CrowdProperty. You bunch it 38 00:02:02,670 --> 00:02:05,279 Sean Aylmer: all together with a bunch of other people providing money, 39 00:02:05,279 --> 00:02:08,400 Sean Aylmer: investors into your fund, and then you're on- lending that 40 00:02:08,730 --> 00:02:10,470 Sean Aylmer: to do exactly what you just said. Is that right? 41 00:02:11,070 --> 00:02:14,130 David Ingram: Yeah, absolutely. We bring diverse sources of capital, everything from 42 00:02:14,130 --> 00:02:17,010 David Ingram: retail investors can invest on the platform, through to institutions 43 00:02:17,010 --> 00:02:20,880 David Ingram: who like residential Australian property, but these projects are too 44 00:02:20,880 --> 00:02:23,699 David Ingram: small for them to warrant doing their own due diligence 45 00:02:23,699 --> 00:02:27,450 David Ingram: on. So absolutely, you get pooled with other investors into 46 00:02:27,450 --> 00:02:29,970 David Ingram: individual loans or you can come into a pooled fund 47 00:02:30,120 --> 00:02:33,899 David Ingram: and get those high yielding returns. Our current CrowdProperty Partner 48 00:02:33,900 --> 00:02:37,858 David Ingram: Fund pays about 10. 5% per annum on a quarterly basis. 49 00:02:38,190 --> 00:02:40,589 Sean Aylmer: Okay. So just before we get into the CrowdProperty funds. 50 00:02:40,980 --> 00:02:45,000 Sean Aylmer: Are retail investors heavily into private credit? Is it mostly 51 00:02:45,000 --> 00:02:48,300 Sean Aylmer: the big super funds? Is it other wholesale funds? Who is 52 00:02:48,300 --> 00:02:50,578 Sean Aylmer: it that's providing the private credit mostly in Australia? 53 00:02:51,120 --> 00:02:54,480 David Ingram: Yeah, private credit is definitely opening up. I'm very excited 54 00:02:54,480 --> 00:02:56,758 David Ingram: to be able to bring this to a retail proposition. 55 00:02:56,758 --> 00:03:00,690 David Ingram: It's traditionally been the preserve of, I'd say, wealthy individuals 56 00:03:00,690 --> 00:03:02,280 David Ingram: with a lot of time on their hands, the high- net- 57 00:03:02,280 --> 00:03:05,460 David Ingram: worth investors, the wholesale investors, and obviously institutions who've been 58 00:03:05,460 --> 00:03:08,730 David Ingram: in this place. So the non- bank lending space, which 59 00:03:08,730 --> 00:03:12,450 David Ingram: is the typical path for investors to invest through is 60 00:03:12,450 --> 00:03:15,750 David Ingram: very opening up. Here in Australia, we're still somewhat behind 61 00:03:16,139 --> 00:03:19,889 David Ingram: Europe and the US, where I think in the US, non- 62 00:03:19,889 --> 00:03:24,029 David Ingram: bank lenders account for almost 50% of lending commercially, compared 63 00:03:24,030 --> 00:03:25,470 David Ingram: to about 10% in Australia. 64 00:03:26,190 --> 00:03:28,620 Sean Aylmer: And so the flip side to that, in your case it's 65 00:03:28,620 --> 00:03:31,200 Sean Aylmer: residential property, but it might be a small business or 66 00:03:31,200 --> 00:03:35,039 Sean Aylmer: it might be they can actually access funds without having 67 00:03:35,039 --> 00:03:37,290 Sean Aylmer: to go via their bank. Is that right? 68 00:03:37,830 --> 00:03:42,180 David Ingram: Absolutely. So borrowers who are looking for the speed, ease 69 00:03:42,180 --> 00:03:44,940 David Ingram: and certainty, which they can get from working directly with 70 00:03:44,940 --> 00:03:47,820 David Ingram: specialist lenders. And private credit encompasses all sorts of things, 71 00:03:47,820 --> 00:03:51,839 David Ingram: from small businesses looking for cash flow around paying for 72 00:03:51,839 --> 00:03:54,600 David Ingram: their invoicing, through to what we do, which is lending 73 00:03:54,600 --> 00:03:58,410 David Ingram: to specialist property developers to build more homes. So it 74 00:03:58,410 --> 00:04:00,780 David Ingram: could be other assets within that, it could be getting 75 00:04:00,780 --> 00:04:03,360 David Ingram: finance for capital goods you need to buy in your 76 00:04:03,360 --> 00:04:06,419 David Ingram: business. There's a whole range of things which private credit 77 00:04:06,420 --> 00:04:06,840 David Ingram: can mean. 78 00:04:07,410 --> 00:04:09,120 Sean Aylmer: Stay with me, David, we'll be back in a minute. 79 00:04:16,320 --> 00:04:21,599 Sean Aylmer: I'm speaking to David Ingram, CEO of CrowdProperty Australia. Okay. 80 00:04:21,839 --> 00:04:24,960 Sean Aylmer: Now upfront you said that it's kind of a less 81 00:04:24,960 --> 00:04:28,409 Sean Aylmer: volatile, stable income. How does it work? So let's say 82 00:04:28,410 --> 00:04:30,660 Sean Aylmer: I've decided I'm going to put some money into a 83 00:04:30,990 --> 00:04:35,520 Sean Aylmer: CrowdProperty fund. As a retail investor, I'm putting in a 84 00:04:35,520 --> 00:04:37,529 Sean Aylmer: hundred thousand dollars a million dollars, pick whatever it is. 85 00:04:38,190 --> 00:04:42,509 Sean Aylmer: I'm getting paid an income stream how regularly and where's 86 00:04:42,509 --> 00:04:43,740 Sean Aylmer: the income coming from? 87 00:04:44,910 --> 00:04:47,188 David Ingram: Yeah. So effectively, you've got to think of yourself here 88 00:04:47,190 --> 00:04:50,040 David Ingram: as the lender. So you're lending to a small- scale property 89 00:04:50,040 --> 00:04:53,279 David Ingram: developer who typically pays the capital and interest back at 90 00:04:53,279 --> 00:04:54,990 David Ingram: the end of the loan term. So these are short- 91 00:04:54,990 --> 00:04:58,080 David Ingram: term bullet loans, typically, up to 18 months. At the 92 00:04:58,080 --> 00:05:01,890 David Ingram: end of that period, you'll get your interest and your 93 00:05:01,920 --> 00:05:05,159 David Ingram: capital repaid. The alternative is to go into a pooled 94 00:05:05,160 --> 00:05:09,540 David Ingram: fund, which simply spreads your investment across the entire portfolio 95 00:05:09,540 --> 00:05:12,600 David Ingram: of first mortgage- secured loans. And for that you can 96 00:05:12,600 --> 00:05:16,740 David Ingram: also earn a quarterly interest payment, which suits people particularly 97 00:05:16,740 --> 00:05:18,960 David Ingram: as they're heading more to that sort of retirement phase. 98 00:05:19,710 --> 00:05:23,640 Sean Aylmer: Yeah, okay. So what sort of investors... and I rush to 99 00:05:23,940 --> 00:05:26,640 Sean Aylmer: tell our listeners that you should always seek professional advice 100 00:05:26,640 --> 00:05:31,349 Sean Aylmer: yourself and you need investment advice fit for your circumstances... 101 00:05:31,800 --> 00:05:36,150 Sean Aylmer: what typically does this sort of product, or who typically 102 00:05:36,150 --> 00:05:37,409 Sean Aylmer: does this sort of product suit? 103 00:05:38,460 --> 00:05:41,309 David Ingram: So private credit is very good in terms of not 104 00:05:41,309 --> 00:05:43,920 David Ingram: just giving you a regular income, as discussed, but also 105 00:05:43,920 --> 00:05:46,109 David Ingram: in potentially a defensive play. So as part of a 106 00:05:46,110 --> 00:05:49,620 David Ingram: broad portfolio of products, you might look at something generating 107 00:05:49,620 --> 00:05:53,219 David Ingram: an income, which isn't necessarily correlated to other assets you 108 00:05:53,219 --> 00:05:55,889 David Ingram: might have in your portfolio such as shares. So it 109 00:05:55,889 --> 00:05:59,159 David Ingram: can provide that stable income return. People who like the 110 00:05:59,160 --> 00:06:02,670 David Ingram: nature of the short- term funds, we have projects which 111 00:06:02,700 --> 00:06:05,849 David Ingram: run from as little as 6 months to 18 months. So it 112 00:06:05,850 --> 00:06:08,370 David Ingram: suits quite a range of investors. Those who are starting out on 113 00:06:08,370 --> 00:06:10,199 David Ingram: their journey perhaps who can't get a foot on the 114 00:06:10,200 --> 00:06:12,690 David Ingram: housing ladder, but like the fact that the end product 115 00:06:12,690 --> 00:06:15,599 David Ingram: they're investing in is actually building more homes, through to 116 00:06:15,599 --> 00:06:18,359 David Ingram: those who retired and looking for that regular income stream. 117 00:06:18,360 --> 00:06:20,880 David Ingram: So it's pretty broad, our investor base. And that stems 118 00:06:20,880 --> 00:06:23,339 David Ingram: from retail investors, as you rightly said, you can invest 119 00:06:23,339 --> 00:06:26,130 David Ingram: from, not a million dollars, but two and half thousand 120 00:06:26,130 --> 00:06:27,899 David Ingram: dollars is actually the starting point. 121 00:06:28,410 --> 00:06:29,609 Sean Aylmer: What about the risks then? 122 00:06:30,509 --> 00:06:32,879 David Ingram: So when you're looking at private credit, the asset class 123 00:06:32,880 --> 00:06:35,670 David Ingram: is probably defined by where they sit in terms of 124 00:06:35,760 --> 00:06:40,110 David Ingram: the security offered and also the seniority within that. So 125 00:06:40,110 --> 00:06:43,020 David Ingram: what I mean by that, is security, we always take a 126 00:06:43,020 --> 00:06:48,000 David Ingram: first mortgage, which is secured by real Australian property, so 127 00:06:48,000 --> 00:06:50,730 David Ingram: it's value adding property, which is usually being developed or 128 00:06:50,730 --> 00:06:53,549 David Ingram: renovated. Just like the bank takes over your home when 129 00:06:53,549 --> 00:06:55,650 David Ingram: you take out a mortgage, they're the first to get 130 00:06:55,650 --> 00:06:58,529 David Ingram: repaid when you sell the house. It doesn't matter whether 131 00:06:58,529 --> 00:07:01,529 David Ingram: when you sell the house you realize a capital gain 132 00:07:01,529 --> 00:07:02,910 David Ingram: or not, so at the end of the day you have 133 00:07:02,910 --> 00:07:04,678 David Ingram: to pay back the bank. So that's one way we de- 134 00:07:04,678 --> 00:07:07,770 David Ingram: risk it. I'd say the other way is through the experience 135 00:07:07,770 --> 00:07:10,889 David Ingram: of our team. So our team are all highly specialized, 136 00:07:10,889 --> 00:07:13,260 David Ingram: they've all been doing their own property developments or they've 137 00:07:13,260 --> 00:07:16,260 David Ingram: been architects or they've done both. So they're able to 138 00:07:16,650 --> 00:07:20,070 David Ingram: evaluate deals as they come to us and select the 139 00:07:20,070 --> 00:07:21,929 David Ingram: best ones. So to give you an idea, we only 140 00:07:21,929 --> 00:07:25,650 David Ingram: select about 4% of all project loan applications for a investor 141 00:07:25,650 --> 00:07:28,889 David Ingram: to invest in. Once the loan goes live, we also 142 00:07:28,889 --> 00:07:32,070 David Ingram: manage those loans very closely to make sure that at the 143 00:07:32,070 --> 00:07:34,230 David Ingram: end of the day our investors are getting their capital 144 00:07:34,230 --> 00:07:35,280 David Ingram: and interest repaid. 145 00:07:36,150 --> 00:07:38,639 Sean Aylmer: Okay. And what's the experience been like over the past 146 00:07:38,639 --> 00:07:41,490 Sean Aylmer: six months or so? I know private credit has become 147 00:07:42,509 --> 00:07:44,670 Sean Aylmer: more popular, or at least we're talking about it more, 148 00:07:45,120 --> 00:07:48,960 Sean Aylmer: through the interest rate cycle. Have you seen a lift 149 00:07:49,139 --> 00:07:51,300 Sean Aylmer: or a significant lift in arrears? 150 00:07:52,440 --> 00:07:55,380 David Ingram: Not in arrears, but we have seen a significant interest 151 00:07:55,470 --> 00:07:57,599 David Ingram: from investors coming in. I think as people, as you 152 00:07:57,599 --> 00:08:00,030 David Ingram: rightly say, interest rates are high, many think they're at 153 00:08:00,030 --> 00:08:02,969 David Ingram: their peak and certainly we're seeing a lot of interest 154 00:08:02,969 --> 00:08:05,609 David Ingram: from the likes of family offices coming into this space. 155 00:08:05,639 --> 00:08:08,160 David Ingram: They can see this is the opportunity to get into 156 00:08:08,160 --> 00:08:11,640 David Ingram: this market. I think they're buoyed by seeing house prices 157 00:08:11,640 --> 00:08:15,540 David Ingram: which have been increasing over the last 14 months across 158 00:08:15,540 --> 00:08:17,610 David Ingram: all the capital cities. I think they've gone up just 159 00:08:17,610 --> 00:08:21,240 David Ingram: this month in all capital cities, bar Darwin. So there's 160 00:08:21,240 --> 00:08:23,730 David Ingram: certainly a lot of interest in both the private credit 161 00:08:23,730 --> 00:08:26,850 David Ingram: side of things, but also in the residential property side 162 00:08:26,850 --> 00:08:30,030 David Ingram: of things. So we've seen definitely that unlocking at the 163 00:08:30,030 --> 00:08:31,860 David Ingram: start of this year compared to last. 164 00:08:32,700 --> 00:08:34,770 Sean Aylmer: The other thing that things like private credit do is 165 00:08:34,770 --> 00:08:37,319 Sean Aylmer: put more competition into the market, David. 166 00:08:38,190 --> 00:08:42,840 David Ingram: Absolutely. I think, generally, our small- scale property developers and 167 00:08:42,869 --> 00:08:46,980 David Ingram: builders have been woefully underserved by the banks. The banks 168 00:08:46,980 --> 00:08:49,920 David Ingram: pulled out of this space a number of years ago, 169 00:08:49,920 --> 00:08:51,540 David Ingram: which is why we've seen the rise in non- bank 170 00:08:51,540 --> 00:08:53,520 David Ingram: lenders. And I think this is the same across other 171 00:08:54,420 --> 00:08:59,039 David Ingram: private credit categories. So you're right, there's more opportunity. It 172 00:08:59,039 --> 00:09:01,380 David Ingram: means we can provide a better service for our borrowers 173 00:09:01,679 --> 00:09:05,070 David Ingram: and it creates more opportunities on the investment side for, 174 00:09:05,370 --> 00:09:07,410 David Ingram: I guess, the category which has traditionally, as I said, 175 00:09:07,410 --> 00:09:09,118 David Ingram: been the preserve of the high- net- worths and the 176 00:09:09,120 --> 00:09:10,410 David Ingram: institutions in the past. 177 00:09:11,070 --> 00:09:13,620 Sean Aylmer: Okay. So if listeners are interested, it's CrowdProp, or what's 178 00:09:13,620 --> 00:09:15,539 Sean Aylmer: your website? Where's the first starting point? 179 00:09:15,809 --> 00:09:17,520 David Ingram: Yeah, go to crowdproperty. com. au. 180 00:09:18,359 --> 00:09:21,510 Sean Aylmer: Fair enough, do that. Of course, make sure that it 181 00:09:21,510 --> 00:09:24,870 Sean Aylmer: does suit your own financial circumstances. Do you think this 182 00:09:24,870 --> 00:09:27,328 Sean Aylmer: is an area or an asset class that's going to 183 00:09:27,599 --> 00:09:28,620 Sean Aylmer: continue to grow? 184 00:09:29,490 --> 00:09:32,370 David Ingram: Absolutely. As I mentioned, we look overseas and we see 185 00:09:32,700 --> 00:09:36,509 David Ingram: this non- bank lending space represents about 50% of the 186 00:09:36,510 --> 00:09:40,588 David Ingram: US market, about 25% of Europe, and only about 10% 187 00:09:40,590 --> 00:09:45,389 David Ingram: in Australia. It's growing rapidly. I think about 15% compounded year- on- 188 00:09:45,389 --> 00:09:47,670 David Ingram: year is the growth we're seeing in this space. So 189 00:09:47,670 --> 00:09:50,909 David Ingram: yeah, without a shadow of a doubt. We're seeing KKR's 190 00:09:50,910 --> 00:09:54,929 David Ingram: recent Family Capital Survey has shown that private credit is 191 00:09:54,929 --> 00:09:57,150 David Ingram: the asset class where most family offices are looking at 192 00:09:57,150 --> 00:10:01,078 David Ingram: increasing their allocations in 2024 compared to they're actually looking 193 00:10:01,080 --> 00:10:03,570 David Ingram: at pulling back on their equity side of things. Not 194 00:10:03,570 --> 00:10:06,690 David Ingram: to say they won't stay in equities, but we're seeing 195 00:10:06,690 --> 00:10:07,919 David Ingram: a balance shift, that's for sure. 196 00:10:08,639 --> 00:10:10,380 Sean Aylmer: David, thank you for talking to Fear and Greed. 197 00:10:10,830 --> 00:10:12,210 David Ingram: Thank you very much. Great to be here. 198 00:10:12,690 --> 00:10:15,900 Sean Aylmer: That was David Ingram, co- founder and CEO of CrowdProperty 199 00:10:15,960 --> 00:10:18,720 Sean Aylmer: Australia, a great supporter of this podcast. This is the 200 00:10:18,720 --> 00:10:21,510 Sean Aylmer: Fear and Greed business interview. Remember, this is general information 201 00:10:21,510 --> 00:10:24,630 Sean Aylmer: only and you should seek professional advice before making investment 202 00:10:24,630 --> 00:10:26,849 Sean Aylmer: decisions. Join us every morning for the full episode of 203 00:10:26,849 --> 00:10:29,549 Sean Aylmer: Fear and Greed, daily business news for people who make 204 00:10:29,549 --> 00:10:32,520 Sean Aylmer: their own decisions. I'm Sean Aylmer. Enjoy your day.