New La Trobe Financial offering combines strategies, giving investors best of both worlds

When it comes to private markets and, in particular, private credit, the genie is not going back into the bottle.

Whilst ASIC is rightly making moves to ensure private markets are efficient and transparent, the forces behind their growth – limitations on the banks to lend, waves of available capital, healthy returns (so far) and, most importantly, investor demand - mean that the sector will continue to grow at pace.

All of that said, private credit investments – like any investment – are not without risks, and it is important that investors understand how this asset class performs during times of stress and volatility like we have seen of late.

To help with that understanding, I recently sat down with Chris Paton, Chief Investment Officer at La Trobe Financial. We discussed how interest rate cuts might impact demand, and the factors impacting the two themes La Trobe invests in via its private credit vehicles – Australian real estate and US mid-market corporates.

Paton also shares the thesis behind a new product, which combines the best of both worlds.

Deal flow remains strong despite volatility

Paton notes that recent market volatility has had minimal impact on La Trobe’s core Australian real estate private credit strategy.

“We are still seeing a strong pipeline of self-originated high-quality loan assets. In actual fact, we saw record volumes in March and April of about $1.9 billion per month” noted Paton.

He attributes this resilience to robust domestic conditions, including full employment, controlled inflation, and underlying economic strength.

In the US private credit space, deal flow has slowed, primarily due to macroeconomic uncertainty.

“To put that into context… it’s really hard for a private equity firm to diligence [companies] for potential acquisition when the macroeconomic picture is unclear,” Paton explains. This hesitation, driven by issues like tariffs, has led both borrowers and lenders to adopt a cautious stance.

However, he notes signs of recovery:

While La Trobe tightens credit settings during periods of uncertainty - as seen during COVID – it avoids widening them even in good times.

“We maintain our credit disciplines. If anything, we will tighten our credit settings during periods of particular market volatility, but we don’t take them the other way. We know that bad loans are most commonly written in good times” Paton says.

These adjustments are overseen by the firm’s origination and credit committee, which tweaks risk tolerances depending on market dynamics.

In the US, tariff announcements caught many market participants off guard.

“The tariffs were to a degree signposted, however, what caught the market by surprise was the sheer scale of the tariffs. That’s taken time for the market to digest. It has impacted some industries more than others. Anyone that's operating in the auto industry… industries like manufacturing with much higher input costs have been particularly impacted.” 

However, La Trobe's US Private Credit Fund is designed to be resilient.

“We take a very defensive exposure… We are providing loans to US mid-market companies, yes, but we're focusing on those that are more mature with high barriers to entry and that can demonstrate strong stable free cash flows in good and bad economies,” Paton says.

Many of these businesses offer “critical non-discretionary services,” making them less sensitive to macroeconomic shifts.

Transparency in portfolio construction is a major focus for La Trobe, especially as private credit scales in Australia.

“We’re very transparent about what’s in our portfolios - what’s on the label is what’s in the tin,” Paton says, noting that this aligns with growing regulatory scrutiny and investor expectations.

Valuation practices are another key area of focus. “Ensuring that the underlying assets are being appropriately valued… [so] that investors are subscribing and investing at a time where the true value is reflected,” is essential for maintaining trust and delivering fair outcomes, he explains.

Paton attributes recent record demand not just to these principles but also to macro tailwinds.

“A declining rate environment will normally see an uptick in house price appreciation,” he notes. This has created a “sweet spot” where borrowers are regaining confidence and the flow of capital is accelerating.

To respond to investor demand for both diversification and access, La Trobe has launched a new ASX-listed private credit fund combining its Australian real estate and US mid-market strategies.

“We are bringing an ASX-listed La Trobe Private Credit Fund (ASX: LF1) to market… bringing together our two flagship, best-in-class strategies under the one vehicle,” says Paton enthusiastically.

The fund provides a mix of domestic and global exposure: “Australian real estate private credit through our 12-month term account… [and] US mid-market corporate private credit through our US private credit fund, developed in partnership with Morgan Stanley.”[1]

This dual exposure is intended to balance risk and provide reliable income.

“The two [strategies] are lowly correlated but very complementary,” says Paton. “It’s providing a diversified allocation within their fixed income portfolio.”

He also points to Australia’s underweight exposure to global fixed income: “This product provides that global diversification.”