The Australian share market delivered a positive but underwhelming result over the 2025/26 financial year. The ASX 200 rose by approximately 3% before dividends, materially lagging a number of offshore markets where returns were boosted by technology and artificial intelligence-related stocks. Within the Australian market, performance was uneven, with resources stronger while healthcare and technology were more challenged.
Despite the modest headline return, we do not regard the Australian market as cheap. Valuations in a number of areas remain expensive, including the banking sector where share prices imply a very benign outlook for credit growth, bad debts, margins and the housing market. We are not bearish on all companies, but we are being selective about where we take risk. As a general comment, for new investments, we are tending to stay away from many of the largest (ASX 20) companies that are attracting premium valuations at the current time.
Private credit opportunities
Against this backdrop, we have continued to look for investments that can provide income, diversification and a return profile less dependent on listed equity market valuations. One area we have been researching carefully is private credit. While private credit is not risk-free and needs to be assessed fund by fund, we believe selected private credit investments can play a useful role for clients seeking income and diversification away from traditional listed shares and bank hybrid investments.
Private credit has grown strongly because the Australian Prudential Regulation Authority’s (APRA) tighter capital and lending requirements have effectively pushed banks toward the areas that are easiest to secure, standardise and capitalise — overwhelmingly residential housing, and to a lesser extent larger commercial property. While this has helped strengthen the banking system, it has also meant other productive sectors of the economy, including agriculture, trade finance, asset-backed lending and small-to-mid-market business lending, are often less well serviced by traditional banks. This has created an opportunity for specialist private credit managers to provide capital to borrowers that still need funding, while offering investors attractive income where the loans are well secured and properly structured.
Horizon has recently completed detailed reviews on two private credit investments that we consider worthy additions to portfolios, subject to each client’s circumstances, risk tolerance and investor classification.
MA Priority Income Fund — defensive private credit
The MA Priority Income Fund is the more defensive of the two opportunities and is available to both retail and wholesale investors. The Fund is managed by MA Financial Group, an ASX-listed alternative asset manager, and invests in a diversified portfolio of secured, asset-backed loans across Australian private debt markets. It targets defensive, income-generating credit across multiple sectors, borrowers and origination channels.
The feature we particularly like is the Fund’s priority structure. Investors hold Class A Units, which have priority over MA Financial’s own Class B co-investment in relation to both income and capital. MA Financial co-invests 10% of the total fund portfolio in a junior position, meaning its capital absorbs losses before Class A investors are impacted. This is not a guarantee, but it is a meaningful alignment mechanism.
The Fund targets a return of the RBA Cash Rate plus 4.00% per annum, currently approximately 8.35% per annum, paid monthly. Since inception in November 2018, the Fund has paid its full monthly distribution every month and the 10% capital buffer has never been impaired. For clients seeking defensive income and diversified exposure to private credit, we believe the MA Priority Income Fund is a sensible portfolio addition.
Further information:
▪ PDS for the MA Priority Income Fund
▪ Investment Summary Review by Horizon
▪ Spotify interview with MA Financial
Barrenjoey First Ag Credit Fund — higher return, higher risk, wholesale only
The second opportunity is the Barrenjoey First Ag Credit Fund. This is a more specialised and higherrisk private credit fund and is available to wholesale investors only. The Fund provides trade finance to the agricultural sector, particularly short-term working capital finance for established mid-market operators across beef, sheep and lamb, grain and dairy. Loans are typically 60 to 120 days and are often linked to contracted end buyers.
This is a niche area where the banks have largely withdrawn. The Fund targets a return of approximately 6% to 7% above the cash rate, equating to around 10.3% to 11.3% per annum, paid quarterly. Much of the lending is supported by fixed-price contracts with institutional counterparties such as Woolworths, Coles and JBS. The Fund also controls cashflows through controlled accounts, so loan repayment and interest are received before the balance is remitted to the borrower.
That said, this is not a low-risk investment. The current portfolio is relatively concentrated and the Fund uses a revolving credit facility, meaning gearing can amplify losses if conditions deteriorate. It should not be viewed as a substitute for cash or term deposits. For suitable wholesale clients who can tolerate illiquidity, concentration and agricultural sector risk, we believe the Fund is a differentiated income opportunity suitable for larger less risk adverse diversified portfolios.
Further information:
▪ Information Memorandum for the Barrenjoey First Ag Credit Fund
▪ Investment Summary Review by Horizon
▪ Spotify interview with Barrenjoey
Banks, housing policy and portfolio positioning
Last month we wrote about the Australian banks’ exposure to residential housing credit and the risk that changes to negative gearing and capital gains tax could create a headwind for the sector. With those changes now legislated, the issue is no longer theoretical.
To be clear, we are not suggesting an imminent banking crisis. The major banks remain well capitalised and highly profitable. Our concern is more subtle: with negative gearing now removed for newly acquired established investment dwellings, investor borrowing capacity is likely to fall, as banks will have less tax-deductible cashflow to factor into serviceability assessments. That matters because residential mortgage lending remains one of the major drivers of bank earnings.
If fewer investors are borrowing, or investors are borrowing less, the major banks will be competing for a smaller pool of new housing loans. In that environment, competition is likely to intensify. Banks may need to sharpen pricing, offer larger discounts, or accept lower margins to defend market share. The risk is therefore not just slower credit growth, but slower credit growth combined with pressure on net interest margins.
This is in addition to the risks we raised last month around softer property prices, weaker borrower confidence and potential deterioration in credit conditions. While those risks may take time to emerge, margin pressure from increased competition could appear more quickly if lending volumes slow, adding to the headwinds facing the banking sector at a time when elevated bank valuations leave little room for disappointment.
This matters because the major banks alone account for roughly one-quarter of the Australian share market index. The banks are often viewed as defensive dividend-paying shares, but their earnings remain heavily linked to the residential property cycle. Against this backdrop, we are deliberately maintaining an underweight exposure to the banking sector.
Operational update — move from Bank of Queensland to Macquarie
Many client accounts had the majority of their cash balances moved from Bank of Queensland to Macquarie at the start of the month, with remaining accounts expected to transition during July. As each transfer occurs, you will receive notification from Bank of Queensland confirming the transfer to your new Macquarie account.
All Bank of Queensland accounts will retain a small balance for the next few months to receive any miscellaneous income while third parties you invest with action the updated banking details that have been provided. Any residual Bank of Queensland balances will be transferred before the end of November, at which time Bank of Queensland will close all accounts.
The Macquarie Cash Management Account currently pays an interest rate of 2.75%. Linked to this account is an at-call Macquarie Accelerator Account, which presently pays 4.65% on deposits up to $2 million. As the Macquarie transition progresses, we will look to move larger cash balances into the Accelerator Account where appropriate, to take advantage of the higher interest rate.
We thank you for your patience as this transition progresses. Please do not hesitate to contact our office if you would like to discuss any matters pertaining to your portfolio. I am presently on annual leave and will not be back in the office until Wednesday 22nd July.
