Investments, SMSF

Private credit improves SMSF portfolios

Private credit SMSF Zagga Investment strategy

The inclusion of private credit in an SMSF portfolio can not only boost returns, but also lower the amount of investment risk of the super fund.

A specialist fund manager has suggested SMSF trustees can achieve better portfolio returns while decreasing the fund’s level of risk with an allocation to private credit.

“We did some research around 2017 into the SMSF market and found trustees really only have two investment strategies. They either go for the higher-returning investments, which obviously have the highest amount of risk, or they end up with the lowest-returning investments with the lower amount of risk,” Zagga chief executive and co-founder Alan Greenstein told delegates at SMSF Professionals Day 2024 co-hosted by selfmanagedsuper and Accurium in Sydney last week.

“So what basically private credit can do is allow SMSF trustees to put some weight into the middle of those two extremes to get an investment that is not nearly as high risk as a venture capital risk or a private equity risk or even pure equity risk, but on the other hand also to generate a return that would be much higher than bank-rate returns.”

Greestein pointed out an allocation to private credit would achieve greater portfolio diversification as well due to the asset class’s interaction with other investment categories.

“Investing in private credit will certainly help risk management on the basis that this asset class is counter-indicative to inflation and is not correlated to equity markets. What do I mean by that? It doesn’t matter where interest rates are headed, trustees know the return they are going to get. Also, whether markets go up or markets go down, this income is not going to change,” he said.

SMSF investors can access private credit opportunities through the Zagga CRED fund, which is a unitised version of the Zagga Feeder Fund. The underlying investments for the offering are high-quality, mortgaged-secured loans in the commercial real estate sector.

“The return that we target is 4 per cent over the official cash rate. The official cash rate today is 4.25 per cent, so we’d be looking to deliver an 8.25 per cent annual return,” Greestein confirmed.

The minimum amount required for an initial investment is $50,000 and returns are distributed monthly.

The Zagga CRED fund is currently available on the Praemium, Netwealth and Hub 24 investment platforms.

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