Private Credit Surge Challenges Australian Banks
Private credit is posing a significant competitive threat to Australia's major banks, according to a recent Citi report. This shift in the lending landscape represents a structural change in the market, driven by banks' risk aversion and stringent regulatory oversight.
Rapid Growth and Attractive Returns
Private credit in Australia has expanded by approximately 45% since July 2019, outpacing traditional bank credit growth of 25% over the same period. This sector offers double-digit gross returns, attracting substantial capital from superannuation funds and wealthy families.
"The private credit sector has provided strong risk-adjusted returns in recent years. Higher for longer rates provide for double-digit gross returns, which will likely continue to attract capital into the sector," says Citi analyst Brendan Sproules.
Commercial Real Estate Focus
The commercial real estate sector has become a key target for private credit funds. As major banks have reduced their exposure to this area, private lenders have stepped in with higher-rate loans. Recent acquisitions by Regal Partners and HMC Capital highlight this trend, with both firms targeting returns of at least 10%.
Challenges and Risks
Despite its growth, the private credit sector faces scrutiny over loan quality and fee structures. JPMorgan CEO Jamie Dimon has warned that the sector hasn't been tested by a major economic event like the global financial crisis. Industry insiders stress the importance of transparency and integrity in fee allocation to maintain investor confidence.
As private credit continues to expand in Australia, it presents both opportunities and challenges for investors and traditional lenders alike. The sector's growth trajectory and impact on the broader financial landscape will be closely watched in the coming years.
AGL's Power Plant Shutdown in Adelaide Faces Reconsideration Amidst Cable Delays
As of 9 July 2024, the planned closure of AGL Energy's gas-fired power plant near Adelaide may need "some rethinking" due to mounting costs and delays affecting a crucial $2.3 billion electricity cable project.
EnergyConnect Cable Faces Setbacks
The EnergyConnect high-voltage line, designed to link South Australia's renewable projects to the national power grid, has encountered significant issues. The Australian Energy Market Operator (AEMO) has warned that a 12-month delay in the cable's connection has worsened the outlook for reliable electricity supply in SA.
"I think the South Australian government will be more unhappy about this than anyone," said Dylan McConnell, an energy systems analyst at UNSW.
Implications for AGL's Closure Plans
AGL had previously announced the closure of its Torrens Island B gas power station in Adelaide by 2026. However, the EnergyConnect delay may force a reconsideration of this timeline. AGL maintains its current closure plans but continues to engage with stakeholders.
Broader Impact on Renewable Energy Projects
The EnergyConnect project is critical for connecting over two gigawatts of wind, solar and battery projects to the grid. Its delay has unnerved renewable energy developers and investors who rely on the timely completion of such transmission projects.
Marilyne Crestias, head of the Clean Energy Investor Group, emphasised the importance of the project, stating, "It's really important to unlock that renewable energy investment that we know we need to make sure that the grid remains reliable as the thermal fleet is ageing."
Future Challenges
Experts warn that rising construction costs and skills shortages pose significant risks to Australia's energy transition. The situation highlights the need for realistic cost and timeline estimates, as well as better coordination in the energy sector.
Record-High Home Loans Hit Aussie Market Despite Interest Rate Hikes
New owner-occupier home loans in Australia have reached an all-time high of $626,055 nationally, according to the latest Australian Bureau of Statistics (ABS) data. This surge comes despite the Reserve Bank of Australia's (RBA) interest rate hikes, which have significantly reduced borrowing capacity for many buyers.
State-by-State Breakdown
Queensland, South Australia, and Western Australia have seen record-breaking average loan sizes:
- Queensland: $586,627
- South Australia: $541,775
- Western Australia: $538,860
New South Wales still leads with the largest average loan at $767,584, though this is below its January 2022 peak. Victoria, however, has experienced a decline, with the average loan size falling to $601,891.
"It's astounding to think owner-occupiers are, on average, taking out larger loans than ever before despite the fact the cash rate is sitting at a 12-year-high," said Sally Tindall, research director at RateCity.com.au.
Market Divergence and Future Outlook
While Brisbane, Perth, and Adelaide house prices hit record highs, Melbourne's market is faltering. Experts predict a temporary slowdown in price momentum for the latter half of 2024, with potential interest rate cuts and ongoing housing shortages likely to trigger price growth acceleration from early 2025.
However, housing affordability concerns may limit these gains, creating a complex landscape for potential homebuyers and investors alike.
Labor Pushes Ahead with Tough Anti-Money Laundering Reforms
In a bold move to combat financial crime, the Australian Labor government is set to expand tough anti-money laundering laws to include accountants, lawyers, and real estate agents. Attorney-General Mark Dreyfus will address the National Press Club today, emphasising the urgent need for these reforms.
Closing the Financial Backdoor to Criminals
Mr Dreyfus warns that opposing these changes would aid criminals exploiting Australia's financial system. The reforms aim to bring Australia in line with international standards and address the country's vulnerability to organised crime.
"Opposing these reforms means aiding and abetting the criminal abuse of our financial system by drug traffickers, people smugglers, terrorists and those who exploit and abuse children," Mr Dreyfus states.
Key Insights from AUSTRAC
Brendan Thomas, CEO of AUSTRAC, highlights that drug offences are the largest source of money laundering in Australia. He also notes the role of professionals in concealing illicit funds:
"Domestic criminals rely on lawyers, who often work alongside other professionals such as accountants, financial advisers and offshore service providers, to conceal illicit funds and beneficial ownership," Thomas explains.
Modernising AML/CTF Laws
The government plans to simplify and modernise the Anti-Money Laundering and Counter-Terrorism Financing Act to keep pace with the evolving global financial system. This move comes as Australia faces criticism from the Financial Action Task Force for non-compliance with international standards.
Despite opposition from some professional groups, the Labor government remains committed to these crucial reforms. The changes aim to safeguard Australia's financial system and make it more attractive to foreign investment and trade.
Whyalla Steelworks Resumes Production After Shutdown
Steel production has recommenced at the Whyalla Steelworks, bringing relief to workers and the local community. The restart comes after a shutdown in March that led to reduced shifts and wages for many of the 1,100 employees.
Workers Return to Full Shifts
Employees are now returning to their regular 12-hour shifts as the steelworks resumes its 24-hour operations. This marks the end of a period where many workers faced 20-30% wage cuts due to reduced hours.
"We're calling on Liberty Steel when they undertake a maintenance shutdown next time — don't lower the temperature too much," said Gary Henderson, acting state secretary for the Australian Workers' Union.
Future-proofing the Steelworks
GFG Alliance, the steelworks owner, is developing a new thermal lancing system to prevent future shutdowns. This innovation aims to provide better control during restart processes.
Despite delays, GFG Alliance remains committed to decarbonising the plant by 2030. Chairman Sanjeev Gupta stated, "While we recovered the blast furnace, we also began designing a special-purpose oxygen and natural gas lancing system."
Community Impact
The shutdown caused significant concern in Whyalla, where the steelworks is the primary source of income. Mayor Phill Stone expressed relief at the restart, saying, "These operations are critical for our community."
As Whyalla Steelworks moves forward, the focus is on maintaining production stability and progressing towards a carbon-neutral future.
Aussie Talent Flocks to Booming Gulf Investment Scene
The Arab Gulf states have transformed from a financial backwater into a hotspot for global talent, including many Australians. With sovereign wealth funds managing over $US3 trillion, the region is attracting investors with lucrative pay packages and tax benefits.
Why Aussies are Making the Move
Mischa Bennett from Capital Executive Search highlights the main attractions:
"The main attraction by a country mile is the high pay, with accommodation and schools usually paid for. The other big drawcard is a booming economy, people make comparisons to the 'new Hong Kong'."
Australian professionals in private equity, infrastructure, and real estate are particularly drawn to the region's vast capital pools and transaction opportunities.
Aussies in High Places
Several Australians have secured top positions in Gulf investment firms:
- Troy Rieck: Chief Investment Officer, Emirates Investment Authority
- Marcus Hill: Head of Transportation, Abu Dhabi Investment Authority (ADIA)
- Mike Wilbin: Deputy Head for Equities for Asia, ADIA
- Ellie Saffron: Former Portfolio Manager at ADIA, now running investment consultancy Maysaffron
Impressive Pay Rises
Junior stock pickers can expect salaries around $US170,000 ($250,000), while senior candidates in listed equities may earn between $US310,000 and $US340,000. With bonuses, annual salaries could approach $1 million, often with lower tax rates.
Despite the scorching climate limiting outdoor activities, many Australian investors find it hard to justify returning home due to the significant pay cut. As Bennett notes, some professionals aim to work in the Gulf for a few more years before retiring comfortably back in Australia.
With the Gulf's investment scene continuing to boom, it's likely we'll see more Australian talent heading to the Middle East in the coming years.
Gender Disparity in C-Suite: Women Feel Less Respected, Study Reveals
A new study by Culture Amp has uncovered a significant respect gap between men and women in top-level business positions. The research, which surveyed over 24,000 senior leaders globally, found that while all C-suite men felt respected at their company, 25% of C-suite women did not share this sentiment.
Key Findings
- 10% of C-suite women believe their views are disregarded
- All C-suite men feel their opinions are valued
- Women are three times more likely to be interrupted in meetings
Aubrey Blanche-Sarellano, Culture Amp's vice president of equitable operations, highlighted common forms of disrespect towards women in the workplace:
"Everybody interrupts women more than they interrupt men, and that behaviour is an implicit signal that people's opinions aren't valued."
Impact on Business Performance
The study suggests that companies failing to address these issues risk undermining their performance and losing top female talent. Blanche-Sarellano emphasised the importance of creating a culture that prioritises equity and respect.
Strategies for Improvement
To combat these issues, businesses are encouraged to:
- Implement transparent hiring and promotion practices
- Introduce no-interruptions rules in meetings
- Prioritise equity and inclusion in company culture
As the business landscape evolves, addressing these gender disparities in the C-suite becomes crucial for fostering inclusive and high-performing organisations in Australia and globally.
McKinsey's Partnership Status Under Scrutiny
McKinsey & Company's long-standing partnership model faces challenges from both external and internal forces. The global consulting giant, which prides itself on being "the world's leading partnership", is navigating legal and governance hurdles that question the very essence of its organisational structure.
Legal Challenge Emerges
A lawsuit filed in New York by former senior partner Arnab Ghatak has brought McKinsey's partnership status into the spotlight. Ghatak claims the firm breached its fiduciary duty during his dismissal related to the US opioid crisis settlement. McKinsey's response? It argues that as a corporation, it doesn't owe fiduciary duty to its partners.
"To take the position in open court that they are not a partnership might irritate their partners, who say they are a partnership and believe they have fiduciary duties to each other," says Dan Kaiser, Ghatak's lawyer.
Internal Governance Review
Concurrently, McKinsey has launched an internal governance review following two contentious leadership elections. The review considers extending leadership terms and modifying election rules, potentially shifting the firm towards a more corporate structure.
The Partnership Dilemma
Despite its 'partnership' branding, McKinsey has technically been a corporation for nearly 70 years. As the firm expands beyond traditional consulting, with 46,000 employees across 65 countries, questions arise about the sustainability of its partnership model.
While current leadership may resist radical change, the future remains uncertain. As McKinsey grapples with growth and modernisation, could it follow in the footsteps of Goldman Sachs, transitioning from partnership to public company?
Scyne Appoints Former Victorian Public Servant as Managing Director
In a significant move, Scyne, the public sector consulting firm spun off from PwC, has named Jessica Lambous as its first new managing director. Starting in May 2024, Lambous brings over two decades of experience in the Victorian public sector to her role at Scyne.
Public Sector Focus Attracts Top Talent
Lambous, who previously held senior executive positions including CFO and acting deputy secretary of corporate services, chose Scyne for its deep understanding of public sector organisations.
"There's alignment of values because the firm is public-purpose focused," Lambous said. "There's a real desire to build public sector capability, to do knowledge transfer and to be a trusted partner."
Scyne's Growth and Future Prospects
The private equity-backed firm is approaching $200 million in revenue and aims to be profitable by the end of the financial year. With about 100 former PwC partners and 1000 staff, Scyne is actively expanding, having hired 50 new staff and advertising for 100 more positions.
Public Sector Expertise
Lambous emphasised the importance of understanding the unique goals and operations of public sector organisations. She highlighted the focus on stakeholders and public interest, contrasting it with the shareholder-centric approach of private companies.
This appointment underscores Scyne's commitment to public sector consulting and its ambition to become a leading player in the Australian market.
Sendle Shifts Gears: Emissions Offsets and Internal Challenges
In a revealing interview on 8 July 2024, Sendle's CEO James Chin Moody disclosed significant changes in the company's carbon offset practices and addressed internal challenges facing Australia's largest delivery start-up.
Carbon Offset Shake-up
Sendle, known for its net-zero emissions stance, has ceased purchasing carbon credits from South Pole, the world's biggest supplier. This decision followed the collapse of South Pole's Zimbabwean project, which had overstated its emissions reduction claims.
"We've moved to new, externally verified suppliers to ensure we're genuinely sequestering carbon from the atmosphere," Chin Moody stated.
Internal Turbulence
The start-up faces discontent from former employees following a recent capital raise. Some ex-staff members claim their share options are now "effectively worthless" due to the new shares' preferential rights.
Chin Moody defended the company's transparency, saying, "Everyone has complete visibility and control of their options through Carta."
Restructuring for Growth
Sendle underwent significant restructuring in 2022, including redundancies and leadership changes. Despite these challenges, Chin Moody remains optimistic:
"We're back in growth mode, with high customer satisfaction, and nearing profitability."
The recent $US11 million capital raise, described as a "bit of a reset", aims to propel Sendle towards its next phase of growth in the competitive Australian delivery market.
