As geopolitical risks continue to be a constant weight on investors' minds and interest rates remain benign, many are looking towards private debt markets as a new form of alternative investment.
A slew of new funds have popped up around the country, including Tanarra Credit Partners' $285 million raising, Metrics Credit Partners $534 million listed trust and most recently Revolution Asset Management's $500 million target.
Their aim is to connect corporate borrowers seeking long-term loans in an environment where banks are hampered by regulation.
"Banks are tending to step away from structuring smaller more complex loans," says Joseph Caceres, head of manager solutions and alternative investments at HSBC Private Banking, South East Asia.
"And while it's typically only been used by institutional investors, there is now an opening in Australia for these lines of credit from to extend to good quality mid-sized companies."
As it stands, the private credit markets are worth around $US1 trillion globally and there is a lot of robust trading in the United States and Europe.
Data published by the Reserve Bank of Australia shows there are $2.8 trillion worth of loans sitting on bank balance sheets that could open up for superannuation funds, insurers and other non-banks to contest.
The attraction of owning a privately structured loan is the higher yield or spread, relative to the return on bonds, and the opportunity to be higher in the capital stack, when it comes to any payouts.
The illiquidity often enables a higher return for investors as well.
Bonds - traditionally the safest asset class - have been serving up extremely low yields for some time and the extraordinary monetary policy that followed the global financial crisis pushed investors further out on the risk spectrum, seeking higher returns at risk-free rates.
There are generally two types of this private debt: syndicated business loans, where several entities are involved and are for large deals, and bilateral business loans, where just a lender and a borrower are involved and are more suitable for small to medium sized companies.
Pension funds are also getting in on the action with the $2.4 trillion superannuation pool which provides liquidity for borrowers to tap into.
AustralianSuper, Australia's largest pension fund, with over 2 million members, and others such as Construction and Building Unions Superannuation (Cbus), First State Super, REST Industry Super and Telstra Super are developing direct lending strategies.
In the Asia Pacific region, direct bilateral arrangements are springing up between organisations taking on the role of the bank and others requiring financing.
"We are seeing this kind of bilateral financing across sectors, from resources to retail," says Mr Caceres.
"And these direct lending strategies can be insulated from broader market dynamics, which make them an attractive instrument for investors."
Private equity funds have also been looking at private debt markets in Asia as global investors allocate capital to capture growing momentum in countries like China and India.
Global and regional private equity firms have raised a total of $US48.2 billion in Asia-focused funds this year, already surpassing 2016's full-year amount of $US43 billion, according to data provider Preqin.
"But there still are risks coming from private lending, which is not as closely audited," says Mr Caceres.
"Sometimes these private lenders are not as well capital-provisioned and in some cases not as experienced as equivalent bank lending."
