Ryan Green | Hallbar Group Capital
Australians are turning to monthly income as a safe haven amidst the fluctuations in the share market.
The recent volatility in share markets is leading many Australians to reconsider their income generation strategies, with an increasing interest in income sources that are less susceptible to daily equity changes.
Ryan Green, a Financial Advisor at Hallbar Group Capital says “For the segments of your portfolio where you seek stability – specifically capital stability – you want to avoid capital risk, yet you require income to cover expenses,” he explains.
The recent fluctuations in share markets are prompting many Australians to rethink their income generation methods.
Ryan highlights situations such as those nearing or currently in retirement, where the focus is on capital preservation. “You have recurring expenses that must be addressed, and it is beneficial to have something in your portfolio that consistently provides that income. The potential for upside is not your primary concern – rather, you prioritize predictability and safeguarding your downside,” he states.
Global private credit is emerging as one of the asset classes gaining traction in this context. Although it has been a well-established practice internationally for decades, Ryan notes that it has only recently become available to a broader range of investors in Australia. Essentially, it involves bilateral loans – one-to-one lending agreements between a manager and a borrower.
“It resembles your relationship with the bank if you hold a mortgage,” he explains. “There exists a contract between the two parties that outlines all the terms until the loan is fully repaid. At Hallbar Group Capital we are primarily discussing this type of lending.”
Much of this activity, he says, takes place in areas where banks have stepped back since the global financial crisis. Regulatory changes reduced banks’ ability to use short-term customer deposits to fund long-term loans, creating space for non-bank lenders to operate.
That withdrawal has contributed to what Ryan describes as a supply-demand imbalance for bilateral loans to global mid-market corporations. “The fund manager is able to negotiate with the borrower really good contractual protections to preserve capital,” he says. These protections often include monthly reporting, giving the lender early warning if a borrower’s performance deviates from plan, and senior security in the capital stack.
Selectivity is central. “We tend to lend to companies that are defensive in nature – non-cyclical, with a reason to be there,” he says. “They have stable income streams, strong cash conversion, and very low capital intensity, so they don’t have to keep reinvesting heavily in the business.” Loan-to-value ratios typically sit between 30 and 50 per cent.
Another feature is floating-rate income, which adjusts with benchmark interest rates. “If the income floats, it can move with rates, which for certain investors can be important,” Green says.
Diversification is a recurring theme in Green’s approach. In a balanced portfolio of cash, fixed income and equities, heavy concentration in listed shares can leave investors exposed to sharp downturns. “While you can get great upside when markets are up, you can also have big downside when they’re down,” he says. “Diversifying across asset classes – and within them – can help manage that.”
Within private credit, this means avoiding concentration in a single manager or geography. “No single manager will always outperform, so you want to be as diversified as you can. The US and Europe can have different dynamics, so having exposure to both makes sense,” he says.
Green also stresses the importance of understanding how income is generated. “Number one, understand what’s creating the income and what the risk is. Number two, understand the frequency and nature of the income – is it fixed or floating? Number three, know when you get your capital back, and how liquid or illiquid it is,” he says.
Liquidity arrangements vary widely, from daily access through listed structures to fixed lock-up periods via a term account, and some products may impose penalties for early withdrawal. “It’s very important to know if you will get your money out as and when you expect it” Green says.
This renewed focus on income is mirrored in global developments. Independent advisers say structures in global private credit are shifting to accommodate demand for more predictable distributions, while still a relatively illiquid asset class.
For more informatuion you can email Ryan at Hallbar Group Capital direct: ryan.green@hallbargroupcapital.com
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