Private Credit Catching on in New Zealand

Private credit is “catching on in New Zealand” and is emerging as an established alternative to traditional bank lending for borrowers in the country, according to a private credit fund manager.

Nick Whitwell, from private credit manager Aotea Asset Management, said private credit has been a feature of the New Zealand property market for many years, but is “still in its infancy with respect to corporate lending”.

“Historically, private credit funds targeting New Zealand’s corporate sector were largely based offshore and tended to focus on large-scale mergers and acquisitions deals, often involving overseas financial sponsors and higher leverage,” he said in conversation with New Zealand legal firm Chapman Tripp.

“There was little engagement with mid-market borrowers, who have traditionally found it difficult to access tailored financing solutions.

“However, following the post-COVID inflationary, and then recessionary, environment, we are starting to see positive shifts in investor appetite and a growing acceptance from mid-market and corporate borrowers that private credit provides a compelling alternative to traditional bank financing”.

Whitwell said that a key hurdle to overcome before private credit can reach its full potential is the limited mandate from KiwiSaver funds to invest.

“Increased inflows from KiwiSaver funds would provide a significant boost to domestic fundraising capacity and enable managers like AAM to support more great Kiwi businesses, while opening up new markets for KiwiSaver investors,” he said.

On sizing of recent opportunities, he said he has seen an increase in minimum loan sizes for offshore funds, potentially out-growing the New Zealand mid-market space, a more aggressive approach to financial leverage, and a relaxation of covenants in larger transactions.