The Australian market, while smaller, offers a distinctive "structural arbitrage" opportunity, yielding higher spread premiums and benefiting from robust lending standards due to its concentrated banking sector. This makes domestic private credit a strong candidate for a core, defensively positioned income-generating allocation. In contrast, the vast scale and maturity of the US market provide unparalleled opportunities for diversification across a broad spectrum of industries and borrower profiles, alongside access to specialised and cyclical strategies such as opportunistic and distressed debt.
Source: The opportunity in Australian private debt markets, IFM Investors
However, cross-border investing introduces some complexities and some unique enhancements as well. The dynamic of AUD/USD currency fluctuations requires a proactive and adaptable hedging strategy informed by the divergent monetary policy paths of the RBA and the US Federal Reserve. The divergent monetary policies of Australia and the US will be a key driver of returns and currency dynamics in 2025. Australia is easing while the US remains cautious, creating a clear interest rate differential. An option here is to buy in AUD unit classes via local AUD-denominated feeder funds available on our investor platforms.
Source: J.P.Morgan, Economic Outlook
Simultaneously, navigating the intricate tax landscape, encompassing US withholding tax and the Australian foreign income tax offset, demands detailed planning and adherence to reporting requirements to optimise after-tax returns.
Some of the U.S. funds are also now offering Accumulation Classes, whereby the income is not paid out but rather retained and compounded over time. This is an excellent option for clients who do not require the income to be paid out, and there are certainly some tax advantages to this, depending on the investment structure you are using.
Ultimately, a nuanced approach is paramount. This involves a diligent understanding of market specificities, a keen awareness of macroeconomics, and a proactive stance on managing currency and tax implications. By strategically balancing exposures to both the Australian and US private credit markets, and by partnering with experienced managers who demonstrate robust underwriting and risk management capabilities, Australian investors can effectively harness the full potential of this evolving and increasingly vital asset class, positioning their portfolios for resilient income generation and enhanced long-term returns. Source: iPartners
For more information on Private Credit opportunities, both onshore and offshore funds, please contact Kelly+Partners Private Wealth via: investments@kellypartners.com.au
Source: iPartners. (2025, August 18). Private Credit in Australia vs. USA: A Tale of Two Markets.