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Market Update
Navigating Volatility and Alternative Opportunities
March 2026
Global markets have experienced increased volatility in recent weeks as geopolitical tensions in the Middle East have escalated and investors continue to navigate an uncertain macroeconomic environment. Events such as the recent escalation involving Iran have prompted markets to reassess risk, particularly given the potential implications for energy prices, inflation and the path of interest rates.
Periods of geopolitical uncertainty often lead to short-term market dislocations as investors reposition portfolios and reassess valuations. While the recent decline in equity markets has begun to create selective opportunities, the potential for sustained conflict or elevated energy prices could continue to weigh on risk assets in the near term.
Portfolio Positioning
For some time we have maintained the view that equity valuations were becoming increasingly stretched. As a result, portfolios have been positioned with a modest underweight allocation to equities, alongside meaningful exposure to income-generating and alternative assets.
Should equity markets experience further weakness and valuations become more attractive, we would expect to gradually increase exposure. For now, however, the environment continues to favour a disciplined and diversified approach to portfolio construction.
A key objective of our investment framework is to reduce reliance on public equity market performance by maintaining exposure across multiple asset classes.
Private Credit
A significant portion of portfolios may be allocated to alternative income assets such as private credit, which generate income through contractual loan interest rather than relying on the daily market pricing of listed assets.
Recent media commentary has focused on risks within the global private credit market, particularly in the United States and Europe where the sector has expanded rapidly and is frequently used to finance highly leveraged corporate transactions and private equity buyouts.
The Australian market is structurally different. Many of the strategies we utilise focus on senior secured and asset-backed lending rather than leveraged corporate financing. Loans are typically secured against tangible assets such as property or business collateral and structured with conservative loan-to-value ratios and defined loan terms.
Portfolios are diversified across a number of established Australian credit managers with strong track records in secured lending, including Manning Asset Management, MaxCap, Rixon Capital, Woodbridge, Zagga and Centuria Bass Credit, as well as specialised strategies such as the Katch Litigation Fund. These managers focus on disciplined underwriting and senior-secured lending structures, with income primarily generated through contractual lending arrangements.
Diversification across multiple credit strategies, including mortgage lending, asset-backed lending, litigation finance and broader private market credit opportunities, means portfolio risk is not dependent on any single borrower, asset type or manager.
Liquidity Considerations
During periods of market stress, liquidity dynamics in private markets become an important consideration. Unlike listed securities, private credit funds invest in loans designed to be held to maturity. Temporary redemption limits or gates are therefore sometimes implemented to protect investors by allowing loans to amortise and mature rather than forcing sales in secondary markets at discounted prices.
Importantly, many of the strategies we favour have relatively short loan durations. For example, The Manning Monthly Income Fund typically holds a short dated weighted average loan term of between four to six months, whilst in comparison most real estate debt strategies have average loan durations of nine months or greater. This means liquidity can often be generated through the natural repayment cycle of the underlying loans.
Allowing loans to mature and repay is often a more favourable outcome than selling assets in distressed conditions.
The Role of Listed Credit
You may have noticed that several listed private credit vehicles have recently traded below their reported Net Tangible Asset values on the ASX. This does not necessarily indicate deterioration in the underlying loan portfolios. As listed securities, these vehicles remain subject to daily market supply and demand, meaning prices can be influenced by investor sentiment and broader equity market volatility.
While this can result in temporary discounts during periods of market stress, listed vehicles play an important role within diversified portfolios. Their daily liquidity allows investors to access capital when required, providing flexibility that complements the longer-term nature of unlisted credit strategies.
Maintaining a balance between listed and unlisted credit exposures therefore helps ensure portfolios retain both stable income generation and liquidity during periods of market dislocation.
Other Alternative Assets
In addition to private credit, portfolios also include allocations to other alternative assets such as private equity, property and venture investments. These include exposures to managers such as Pantheon Global Private Equity and Pacific Equity Partners, property strategies managed by Centennial and Charter Hall, and hospitality assets through the Redcape Hospitality Fund.
These investments provide exposure to underlying businesses and real assets that are not priced daily on public markets, helping to moderate portfolio volatility while continuing to offer attractive long-term return potential.
Outlook
Across portfolios, the private credit allocation currently targets returns of approximately 9% per annum through diversified exposure to secured lending strategies.
While global commentary has highlighted risks within certain segments of private credit, particularly highly leveraged structures overseas, the Australian strategies we utilise remain supported by strong asset backing and conservative underwriting practices.
We continue to monitor developments across global markets and the private credit sector closely. At present, we remain comfortable with the managers selected and the role these investments play in providing income stability and diversification within client portfolios.
As always, if you would like to discuss any aspect of your portfolio or the current investment environment in more detail, please feel free to contact us.
Best Regards,
Thomas Silitonga
Important: This email is intended for wholesale clients only and contains general information that does not take into account your objectives, financial situation or needs. All returns are targets only and not guarantees, based on modelling by Centennial. Past performance is not a reliable indicator of future performance.
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