In its Bulletin of March 2023, the RBA estimated that non-bank lenders accounted for around 5% of the financial system, around half of which were managed investment funds. It described this as “a small share of total credit … unlike in some other countries.”[2]
RISKS HIGHLIGHTED BY THE REGULATORS
The growing importance of private credit has led to concerns in some quarters that it may pose a systemic risk to financial stability. The IMF has stated that the “migration of credit provision from regulated banks and relatively transparent public markets to more opaque private credit firms raise several potential vulnerabilities ... (which) ... may become systemic.” These sentiments are similar to those of the RBA, which stated that “non-bank lending activities have the potential to undermine financial stability, in part because they are less constrained by regulation.”
TRANSPARENCY
One issue faced by those seeking to safeguard the stability of the financial system is the limited availability of reliable data on private credit. According to the IMF, “Severe data gaps prevent a comprehensive assessment of how private credit affects financial stability.” It recommends closing these data gaps, as do others including the RBA.
APRA’S SUPERANNUATION ASSET ALLOCATION DATA
One small step in this direction in Australia was APRA’s release in June of its inaugural quarterly fund-level statistics. This positive development followed the implementation of new reporting standards as part of APRA’s ongoing Superannuation Data Transformation project to increase transparency in the superannuation industry. The newly released statistics include total fund investments by asset sector types for each APRA-regulated superannuation fund. It includes fund allocations to ‘private debt.’
Though far from a comprehensive survey of the financial system, it still provides actual private credit allocations for a key segment of the Australian investing community. According to ABS Managed Funds statistics, the last of which (“until further notice”) has data from December 2023, $3.8 trillion, or 85%, of the unconsolidated assets of Australia’s managed funds institutions are held by superannuation funds.
While all superannuation funds do not report to APRA, such as most SMSFs, those that do account for the majority of the sector. At the end of December, the reporting superannuation funds had total assets of $2.3 trillion. The total was $2.4 trillion in March 2024. The data included in APRA’s release goes back to the June quarter 2022.
APRA’s data shows total allocations to private debt by the reporting superannuation funds were relatively small at the end of March 2024, totalling $21.5bn or just 0.89% of total assets. While jumping around a bit from quarter to quarter, the allocation has been broadly stable since June 2022, as seen in the graph below.
