Private credit After the Rate Cut: Resilient, Real and Ready

With markets rattled by geopolitical shocks, shifting central bank guidance, and the latest RBA rate cut, investors are increasingly searching for stability. In a recent Ausbiz interview, Capstone Funds Director Frances MacDonald explained why private credit - and in particular, real estate-backed loans - is so popular in this environment.

“By its nature, [private credit] is designed to be predictable and it is, in essence, a defensive asset. And that's really appealing in times of volatility.”

Unlike traditional fixed income, which is heavily exposed to cash rate fluctuations, private credit offers greater stability. These are floating-rate, privately negotiated loans that aren’t traded on public markets - meaning they’re less reactive to daily news and market sentiment. In Capstone’s case, the loans are secured against Australian real estate with conservative loan-to-value ratios, which adds a hard-asset layer of protection.

As for the recent rate cut and the possibility of more to come? Frances discusses how falling rates may slightly compress yields, but they also unlock greater activity, support asset prices, and decrease risk.

“We welcome the changes in the cash rate because with a falling interest rate, you get greater activity in the property market, you get more refinancing, you get lower defaults... It really props up the industry to be stronger.”

Her closing message was focused on why private credit has earned its place in today's portfolio allocation:

“Research has shown over the past couple of years that portfolios with greater allocations of alternative assets and private credit fare better. The appeal is you can get a double-digit return, backed by real assets, you don't get daily volatility, have strong capital preservation and regular consistent income.”

Capstone Income Fund continues to focus on property-backed private loans under $5 million, offering 10% annual target returns with monthly distributions - making it a compelling addition for investors looking to diversify and defend.