Private credit has firmly established itself as an indispensable component of sophisticated investment portfolios, offering compelling risk-adjusted returns and valuable diversification benefits in the current macroeconomic environment. For an Australian investor, the choice between domestic and US private credit markets is not mutually exclusive but rather a strategic decision to leverage the unique strengths of each.

The Australian market, while smaller, offers a distinctive "structural arbitrage" opportunity, yielding higher spread premiums and benefiting from robust lending standards due to its concentrated banking sector. This makes domestic private credit a strong candidate for a core, defensively positioned income-generating allocation. In contrast, the vast scale and maturity of the US market provide unparalleled opportunities for diversification across a broad spectrum of industries and borrower profiles, alongside access to specialised and cyclical strategies such as opportunistic and distressed debt.

However, cross-border investing introduces critical complexities. The dynamic of AUD/USD currency fluctuations requires a proactive and adaptable hedging strategy, informed by the divergent monetary policy paths of the RBA and the US Federal Reserve.

The divergent monetary policies of Australia and the US will be a key driver of returns and currency dynamics in 2025. Australia is easing while the US remains cautious, creating a clear interest rate differential.

Simultaneously, navigating the intricate tax landscape, encompassing US withholding tax and the Australian foreign income tax offset, demands detailed planning and adherence to reporting requirements to optimise after-tax returns.

Ultimately, a nuanced approach is paramount. This involves a diligent understanding of market specificities, a keen awareness of macroeconomics, and a proactive stance on managing currency and tax implications. By strategically balancing exposures to both the Australian and US private credit markets, and by partnering with experienced managers who demonstrate robust underwriting and risk management capabilities,

Australian investors can effectively harness the full potential of this evolving and increasingly vital asset class, positioning their portfolios for resilient income generation and enhanced long-term returns.