This asset class dominated 2024. What's in store for 2025?

In the final webinar of Keyview’s 2024 series, Managing Director Justin Lal and Partner Kevin Hua provided a comprehensive analysis of trends in the private credit market.

They discussed macroeconomic influences, sector-specific opportunities, and their outlook for 2025. The conversation revealed Keyview’s strategic priorities and its approach to navigating economic challenges while capitalising on emerging opportunities.

Economic trends and their impact on private credit

Inflation and interest rates

The overarching economic theme in 2024 was the persistent high inflation and elevated interest rate environment, which significantly influenced the private credit market.

“Interest rates impacted both consumers’ purchasing power and companies’ balance sheets, reducing borrowing capacity in sectors like consumer discretionary and pockets of real estate," Hua explained.

Commodity prices played a notable role in shaping investments. While geopolitical risks had less relevance for Keyview’s Australasia-focused portfolio, higher commodity prices drove investments in mining projects, particularly for major players and select juniors.

Hua emphasised a nuanced approach: “We didn’t change our methodology drastically but placed greater emphasis on downside protection, collateral security, and high-quality credits.”

Shorter durations and structured transactions

In the context of risk mitigation, Keyview balanced shorter-tenure transactions with portfolio diversity.

“Short-dated deals offer visibility on repayment, but they require active redeployment of capital. Our focus remains on matching cash flows while prioritising compelling, high-quality transactions”, noted Hua.

This flexible strategy aligns with the firm’s broader goal of building resilient portfolios.

Key investment themes in 2024

Natural resources: a mixed opportunity

Natural resources emerged as a significant focus, contributing to 30% of Keyview’s deployment in 2024. Hua described a dual dynamic in the sector:

1. Major players benefitted from elevated commodity prices, driving acquisition financing deals. One example featured “a transaction offering a 15% return with substantial asset and EBITDA coverage.”
2. Junior and mid-tier miners faced challenges accessing equity or banking capital despite favourable commodity prices. Selectivity was key, as Hua highlighted a gold sector deal with reduced mining risk:

“Stockpiled resources allowed us to recoup the majority of our loan, minimising exposure to execution risks.”

Real estate and adjacent opportunities

While real estate remains a core part of Keyview’s portfolio, 2024 saw a pivot toward distressed scenarios and adjacent opportunities.

“The real estate market is under stress due to high rates and asset value write-downs. Assets are starting to be sold to address redemption pressures," reflected Lal.

Keyview capitalised on distressed situations by acquiring senior debt and funding last-mile construction projects. For real estate asset managers, the firm provided working capital to navigate underperforming assets and recapitalise balance sheets. “Thematic opportunities in this space will continue into 2025,” Lal predicted.

Beyond real estate: sector agnosticism

Contrary to perceptions that Keyview primarily focuses on real estate, Lal stressed the importance of diversification:

“Corporate and non-real estate assets dominated our deployment this year, reflecting a broader sector-agnostic thesis.”

Investments spanned the aforementioned natural resources, corporate asset lending, and real estate adjacencies, all emphasising strong downside protections.

Challenges and opportunities in structuring deals

Keyview’s commitment to senior secured lending remains steadfast.

“Our goal is to be the last money in and the first money out, maintaining control in case of underperformance”, noted Lal.

For subordinated loans, rigorous protections ensure that capital is recoverable even in adverse scenarios.

Floating versus fixed interest rates are also featured in investment discussions. While Keyview doesn’t forecast interest rates, the firm balances maximising credit spreads with competitive pricing.

“We aim for a 100-300 basis point premium over market benchmarks while accommodating counterparties’ equity cost limitations”, said Lal.

Outlook 2025: Navigating private credit trends

Looking ahead, Hua and Lal outlined key trends likely to shape the private credit market in 2025:

• Evolving real estate dynamics: Continued stress in the real estate market, particularly among asset managers and distressed assets, will drive strategic opportunities.

“We anticipate more recapitalisations and asset sales as managers address redemption backlogs,” Lal said.

• Commodity price sensitivity: The natural resources sector will require careful modelling of downside scenarios.

“We remain conservative, assessing liquidity and collateral coverage to minimise exposure to volatile commodity prices,” Hua stated.

• Sectoral opportunities beyond real estate: Keyview plans to further diversify into corporate and adjacent sectors while maintaining its focus on high-quality credits and downside protections.

A commitment to disciplined investing

Keyview’s disciplined investment philosophy emerged as a recurring theme throughout the webinar. Both speakers highlighted the firm’s dedication to structuring deals that maximise returns while mitigating risk.

“Whether it’s real estate, natural resources, or other sectors, our focus remains on building robust portfolios that deliver consistent, risk-adjusted returns”, said Lal.

This measured, strategic approach positions Keyview to navigate the complexities of the private credit market, ensuring continued success in 2025 and beyond.

Competition in private credit: a tale of two worlds

Reflecting on the evolution of private credit, Hua and Lal underscored the increasing competition fuelled by the influx of capital into the sector.

"The flow of capital into private credit has benefited all players, but it also meant a lot of new entrants, some of whom are simply rebranded non-bank lenders”, said Hua.

The private credit space was described as bifurcating into two distinct realms:

1. Volume-based transactions: these are flow-driven deals subject to pricing pressures.
2. Bespoke lending: highly structured, value-added transactions aimed at solving specific borrower challenges.

The latter, characterised by tailored solutions and expedited execution, offers greater margins but requires more effort and expertise.

"These are the types of transactions where pricing isn’t the issue, but they demand harder work to achieve returns”, explained Hua.

Regulation: a growing focus on transparency and alignment

Keyview also highlighted the growing regulatory scrutiny in private credit, predicting that oversight would increase in three key areas:

• Fee transparency: regulators are likely to examine the alignment of fees charged to investors.
• Disclosure standards: investors are demanding greater transparency, particularly around underperforming investments.
• Valuations: as the Australian private credit market matures, regulators may push for more frequent and robust valuation processes.

These are healthy changes, according to Hua, who added that regulatory evolution is more of a structural shift than a short-term trend.

Strategic asset management: key to navigating complexity

Another recurring theme was the importance of strong asset management capabilities to tackle challenging investments.

"The calibre of teams working through these situations can turn problematic investments into opportunities for larger returns”, noted Hua.

Lal and Hua shared examples of acquiring debt from other lenders seeking quick exits, and leveraging Keyview’s expertise to achieve higher recoveries.

"We aim to buy debt below 100 cents on the dollar, knowing we can extract 120 cents through strategic management," they said.

Family groups with diverse assets also emerged as a focus area. By consolidating debt and simplifying transactions, private credit managers aim to provide tailored solutions that align with these clients' unique needs.

Opportunistic credit: a niche market with promising returns

The webinar emphasised the specialised nature of opportunistic credit and special situations, which involve highly bespoke transactions. These opportunities often command a premium due to their complexity, speed of execution, and limited competition.

"We thrive on solving complexity," said Lal, explaining that these deals often stabilise companies, positioning them for refinancing at lower costs.

While the segment is smaller, its strategic value is undeniable, particularly during periods of economic dislocation.

However, the limits of this market were also acknowledged, given that pursuing opportunities requires patience, strategic thinking, and expertise.

Looking ahead: capital, capability, and consolidation

As the sector grows, maintaining a balance between capital inflows and deal quality remains a priority.

"We’ve been pickier about the deals we pursue, even as more capital becomes available," said Hua.

On the operational side, fostering talent is essential. "You can’t grow expertise overnight; it takes time to develop the skills required for specialised lending," added Hua.

Keyview also predicted continued consolidation among private credit managers. Citing recent transactions in the market, they argued that scale and operational efficiency are becoming critical.

A sector poised for growth and change

The webinar concluded with reflections on the evolving private credit landscape. The industry is maturing, and with that comes both opportunity and challenge. As competition intensifies, regulation tightens, and investment complexity increases, private credit managers must stay agile and strategic. Whether navigating bespoke transactions or adapting to shifting geopolitical and environmental realities, the sector is primed for a dynamic future.