By Chris Paton, Senior Vice President and Chief Investment Officer, La Trobe Financial | Thursday, 16 January 2025

When thinking about investing, you will probably be aware of public stock markets and property. But as Chris Paton, Senior Vice President and Chief Investment Officer at La Trobe Financial explains, there is a whole other world out there.  

Approximately 7.7 million Australians invest in publicly listed companies. While it is fantastic to see so many Aussies investing directly (and via their superannuation funds), they may be missing out on a whole universe of private market opportunities.

Private markets assets offer an increasingly accessible world of opportunity. And for retirement income investors, this is a big deal.

The Private Market Megatrend

Businesses list on stock exchanges as a way of raising capital. These stock exchanges, such as the ASX, are ‘public markets’, allowing anyone to buy or sell shares in those listed companies. But a listing doesn’t come cheap, and the ongoing requirements involved in being a listed company are increasingly rigorous.  

That’s why we have observed a long-term trend of fewer publicly listed companies around the world. 

At the end of 2024, there were 1,989 companies listed on the ASX. This is down from June 2022’s peak of 2,158, and the first time in the last 25 years, there have been fewer than 2,000 companies listed. In the US, public-company listings have almost halved in the past 20 years. In this megatrend, high-quality companies are leaning toward private markets, and away from publicly listed markets.

What do we mean by ‘private markets’?

‘Private markets’ is the overarching term to describe investment in companies or assets which aren’t listed on stock exchanges.  Subsets of private market investment include venture capital, private equity (buying a stake in privately held companies), and private credit (lending to private companies). We’ll touch on Private Credit more shortly.

There is nothing new about these asset classes. Institutional and wholesale investors have been in this space for decades. What is extraordinary, though, is the pace of growth of private markets in recent years. Accounting firm EY states around $US24.4 trillion (AUD$36.1 trillion) is invested in private markets today, up from $US9.7 trillion (AUD$14.4 trillion) in 2012. For context, the Australian share market is worth $2.8 trillion. 

It’s a megatrend that Australian investors cannot afford to ignore.

Private markets have now grown to a scale making it increasingly available for retail investors. All at a time when we see another megatrend: the growth of private credit as a ‘super cycle’ driving investment. 

Why private credit makes sense

If a company isn’t raising money by listing on a stock exchange, another way it can do it is by taking out a loan. In an environment where regulatory requirements continue to grow, many companies are shifting away from traditional banks in favour of private credit (i.e. funding from private lending groups).  

Private credit is an asset class with a long history. And as the private-market megatrend emerges, so too do strategies for everyday investors to consider.

Private credit as an asset class can benefit investors by providing defensive, low-volatility income. These are assets which can be considered for ‘fixed interest’ portfolio allocations; providing outcomes with returns not linked to (historically) more volatile equity markets. 

Along with benefiting income, it can also provide diversification at a portfolio and geographic level. As a broad and diverse market, investors can select from Australian, US, or other global private credit strategies. Private credit can generate impressive returns: direct lending to U.S. middle market companies has provided an average total return of ~9.4% per annum since 2005. 

What many investors find most appealing are the regular distributions, with ongoing returns often paid monthly. Private credit investments can often provide a source of regular income without being beholden to more traditional quarterly or annual distribution and dividend cycles.

Find out more about Private Market Megatrends next week, in Part Two of this series.

Any financial product advice is general only and has been prepared without considering your objectives, financial situation or needs.

This article is brought to you by La Trobe Financial, a proud partner of the Australian Shareholders’ Association.