With changing appetites around share market volatility and investment timelines, Australian investors are rethinking how they generate monthly income.
When it comes to building wealth, Australian investors have long relied almost entirely on their share portfolios, but it’s not the only way to generate returns from your savings.
As people move closer to retirement – or start drawing on investments to fund day-to-day life – we naturally start to look for ways to make our money work harder.
“As investors get older and their investment time frames shorten, the focus moves from trying to get rich to trying to stay rich, while still ensuring your money is working smarter for you,” says Dean Weinbren, managing executive at high-yield fixed-term accounts provider TermPlus.
It’s a shift many of us will recognise – and it’s changing how people think about risk, income and where we feel comfortable putting our money.
When volatility becomes a real problem
Shares have delivered strong returns over the long term, but they can be unpredictable. When the objective is to draw regular income, a market downturn doesn’t just hit portfolio values – it can also knock dividend income at exactly the wrong time.
“When you’re relying on your investments to generate income, avoiding stock volatility becomes much more important,” Weinbren tells Your Money & Your Life. “Investors are thinking more carefully about balancing risk, return and reliability, particularly in an environment where markets have already experienced strong growth over a prolonged period.”
The result is that more investors are looking for diversified income sources that don’t move in lockstep with the share market.
Enter global private credit
One asset class attracting growing attention is global private credit.
“Private credit is essentially lending that happens outside the banking system,” Weinbren explains. “It involves providing contractually protected loans to companies, often in the global middle market, and earning income through the interest payments on those loans.
“In Australia, private credit makes up about 10 per cent of the lending market. In places like the US and Europe, private credit makes up over 80 per cent of the lending market, so it’s a significantly broader, deeper and more mature asset class than what we find domestically.”
Private credit has existed in Australia for many years, predominantly in the form of property-based private credit. What global private credit offers, in contrast, is access to a vast array of established companies who are seeking funding for various strategic requirements like expansion, acquisition, or growth in general.
As regulators pulled banks back from parts of the corporate lending market following the GFC, global private credit has now become one of the fastest-growing asset classes of the past 15 years. Only recently have Australian investors been able to access it more broadly.
Established ASX-listed Australian funds manager Pengana Capital Group is seeing rapid uptake of its global private credit product, TermPlus.
TermPlus offers an online term account platform that aims to deliver reliable monthly income to account holders, underpinned by a professionally constructed and highly diversified portfolio of global private credit.
It offers floating target returns calculated as a fixed margin above the RBA Cash Rate, designed to mitigate the effects of inflation on customers’ monthly income. For everyday investors, it’s a simple way to access attractive and reliable monthly income from an asset class that was previously the domain of large institutional investors.
Why global beats local here
Australia has its own private credit market, but it’s relatively small and heavily concentrated in property-related lending. The global market, however, is a different story.
“The global private credit market sector is significantly more diversified across multiple industries, sectors and regions,” Weinbren says.
“Diversification is critical in any income strategy. Having exposure across different borrowers, industries and geographies helps build resilience and reduces reliance on any single part of the sector.”
Institutional investors have understood this for years. The shift now is that individual investors are starting to get access too.
Opening up to everyday investors
Global private credit has historically been the domain of large institutional portfolios, but that’s beginning to change.
“We’re seeing growing awareness among Australian investors as access improves,” Weinbren says. “Historically, many investors simply didn’t have the ability to participate in global private credit, but that’s changing as more entry points become available.”
Weinbren believes global private credit will eventually become a standard part of how we build portfolios – much like global equities did in previous decades.
The income appeal
The core attraction is simple: With returns coming from a diversified pool of contractual loan interest payments, global private credit can deliver a more predictable income stream than assets that depend on market sentiment, capital gains or variable dividends.
“Investors are increasingly focused on the aim of generating consistent income while keeping their capital stable,” Weinbren says. “That’s particularly important for retirees, SMSFs (self-managed super funds), and investors who want their portfolios to deliver reliable cash flow without taking stock market risk.”
That’s exactly the point: building a portfolio that supports financial independence rather than just chasing market growth.
The importance of doing your homework
As with any investment, it pays to understand what you’re getting into. Weinbren points to a few key factors to look at: the manager’s track record, their experience through different market cycles, and the level of diversification within the loan portfolio.
“Having exposure across multiple managers and a broad range of underlying loans can help create a more resilient income stream,” he adds.
The bottom line
The investment landscape for income-focused Australians is changing. Shares and property aren’t going anywhere, but diversification is widely acknowledged as the only free lunch in investing, and the search for reliable, diversified monthly income is opening doors to asset classes that were once out of reach for most of us.
“Ultimately, investors want confidence that their money is working harder and smarter for them,” Weinbren says. “Global private credit is one of the ways they’re looking to achieve that balance.”
Find out more at termplus.com.au.
This article is brought to you by Your Money & Your Life in partnership with TermPlus.
Disclaimer: Pengana Capital Limited (Pengana) (ABN 30 103 800 568, AFSL 226 566) is the issuer of units (Term Accounts) in TermPlus (ARSN 668 902 323). Any advice provided is general in nature and does not take into account your particular objectives, financial situation or needs. You should consider the PDS and TMD before investing in TermPlus.
