The Silent Generation and the Rise of Private Lending

Commentary in the national press predicts that we are going to hear a lot more this year about private credit. This will gain traction as an important investment asset and will be added to an increasing number of client portfolios. This may be especially so for those investors who want to reduce their exposure to the volatility of public market assets such as shares, and those who want attractive returns and regular income.

Baby boomers were born during an 18 year period of elevated births after WWII between 1946 and 1964. Last year, boomers celebrated birthdays between the ages of 59 and 77. It’s the baby boomers who seem to dominate discussion of retirement incomes and post-retirement investing, but there is a cohort of investors who have already been quietly investing and supporting themselves and their families for many years. Known as the Silent Generation (or the Builders), born between 1928 and 1945, they preceded the boomers and are now aged between 78 and 95.

What has been startling about this generation – apart from the realisation that they are the great upholders of many of the values our society relies on to operate – is how many are unwilling to ride the ups and downs of the stock market. Selling out entirely and throwing it all into a term deposit is not an uncommon approach by this cohort amid a general desire to “simplify one’s affairs”. It seems that once investors reach their late 70s and early 80s, there’s a strong desire to invest in something that can be relied on to produce more stable and regular cash returns.

What is now being called private credit is becoming increasingly popular.

In Australia, a gap exists between what small to medium-sized corporates in Australia would like to borrow for growth and what the banks are willing to finance. And that gap has nothing to do with the quality of the borrowers, many of whom are able to provide first mortgages, directors’

guarantee, general security agreements and other high levels of security and collateral. The gap exists because regulatory changes made lending to small and medium-sized businesses more challenging for the big banks.

Fifteen years ago, had someone been approached to lend money to small to medium-sized businesses, he or she might have thought it was too risky. There was a perception that this comprised lending to businesses that the banks didn’t want to touch. Today, the businesses looking for funding haven’t been rejected by the big banks at all. Instead, the big banks, due to regulation, have progressively shut their doors to that type of lending. This has created great opportunities for private credit to generate attractive returns.