“We’ve been very fortunate to have a retirement system that encourages a longer-term perspective,” he says. “As that market has matured, it’s allowed large allocators to look through cycles, take a longer-term investment approach and develop real sophistication in their internal teams.”
That capability is now showing up in how capital is deployed. Rather than broad allocations to alternatives, investors are building targeted exposure across sub-asset classes, particularly within private credit – broadly, non-bank lending across corporate, real estate and infrastructure financing.
“Over time those allocations have become much more specific,” Kleinig says. “We’re seeing alternative credit go into some quite esoteric areas, and that’s really a function of the capability that’s been built up within investment teams.”
The scale of the shift is becoming more pronounced.
Alternative credit moves to the centre
Alternative credit has moved closer to the centre of portfolios, offering income and diversification at a time when traditional fixed income is being reassessed.
The survey shows private infrastructure, private credit and private equity remain the top areas for increased allocation, with Australian investors placing particular emphasis on private credit.
Kleinig says the change reflects a broader reassessment of risk across the capital structure.
Andrew Kleinig, managing director and head of Australasia and Southeast Asia at Nuveen.
“It’s increasingly a relative value discussion,” he says. “Whether it’s infrastructure, corporate lending or real estate, investors are looking at debt versus equity as part of their strategic asset allocation.”
This is changing how portfolios are constructed. Two-thirds of Australian institutional investors (66 per cent) agree that diversifying their alternative credit portfolio is a top priority over the next five years.
“In our experience, particularly among Australian institutional investors, people started with US middle market corporate direct lending as the ballast of their portfolios,” Kleinig says. “Then over time they’ve looked at other areas, whether that’s mezzanine, Europe, or some of the more specialised parts of the market.”
Those core allocations remain the foundation.
“You’re seeing that baseline of infrastructure debt, real estate debt and corporate direct lending continue to grow, and then investors are adding around that,” he says.
That is widening the opportunity set. Nearly half of institutional investors are expanding into new niche areas of private credit, including energy infrastructure credit and asset-backed lending, as they look to diversify within the asset class.
The growth of private credit is also drawing closer regulatory attention. The Australian Securities and Investments Commission has said the sector is becoming an increasingly important part of local capital markets, while highlighting the need for stronger transparency, valuation discipline and liquidity management as it expands.
An EY-Parthenon review of the Australian private debt market highlights the rapid expansion of the sector, with private credit moving from a niche allocation to a more structurally important source of capital as institutional demand and borrower needs continue to evolve.
As the report released in March notes, private credit has “moved from a niche product to a mainstream funding source”, reflecting both borrower demand and the growing role of institutional capital in the financing mix.
That shift is being driven in part by structural changes in the lending landscape. As regulatory pressure and capital constraints shape bank balance sheets, they are not always able to meet the full scale or complexity of demand, with private capital increasingly complementing that funding across corporate lending, real estate finance and infrastructure.
EY-Parthenon says private credit is becoming a “structurally important part of the financing landscape in Australia”, reinforcing its role as a core component of capital markets rather than a peripheral allocation.
Going global for scale and diversification
Australian investors are also looking offshore to access a deeper pool of opportunities, particularly in the United States and Europe.
“If you look at corporate direct lending, the Australian market is a very small proportion of the global opportunity set,” Kleinig says. “Going offshore gives you access to a much larger market and a much broader range of borrowers, sectors and structures.”
The rationale has shifted.
“Historically, going offshore was often associated with the need for a return premium,” he says. “Now, as long as there’s a comparable level of return, the diversification benefits are often enough to justify the additional work.”
Energy transition reshapes priorities
While global investors continue to focus heavily on artificial intelligence, Australian institutions are placing greater emphasis on energy transition as a defining investment theme.
The survey identifies energy transition as the top priority for Australian investors, directing capital towards infrastructure and real assets linked to long-term economic change.
That focus aligns with private markets, where many of these assets sit and where long-duration capital can be deployed more effectively. It is also reinforcing the role of infrastructure and real estate debt within portfolios, offering income and structural protections that align with long-term liabilities.
From strategies to solutions
As private markets take a larger role in portfolios, the way investors access them is also evolving.
“We’re seeing a shift towards solutions rather than standalone strategies,” he says. “Some investors are looking for more immediate capital deployment, so you’re bringing together different elements into a single access point.”
Access is also broadening beyond traditional institutions.
“The lines between what people would traditionally regard as institutional and retail are starting to blur,” he says. “You’re seeing sophisticated wholesale investors accessing the same underlying assets, but through structures that provide a bit more liquidity and work on platforms.”
Private markets are now a core component of Australian portfolios, supported by strong demand, a broader opportunity set and the structural characteristics of the superannuation system.
For investors, the question is no longer whether to allocate, but how to do so effectively.
“We don’t see this as something that moves back to zero,” Kleinig says. “It’s now a structural part of portfolios, and it’s likely to be there for the foreseeable future.”
As allocations continue to rise, private markets are set to play a larger role in financing businesses, infrastructure and real assets tied to long-term economic change.
To find out more, and to read the EQuilibrium survey, please visit nuveen.com/equilibrium
This material, along with any views and opinions expressed within, are presented for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as changing market, economic, political, or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with their financial advisors.
Important information on risk
Past performance is no guarantee of future results. All investments carry a certain degree of risk, including the possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time.
Private equity and private debt investments, like alternative investments are not suitable for all investors given they are speculative, subject to substantial risks including the risks associated with limited liquidity, the potential use of leverage, potential short sales, concentrated investments and may involve complex tax structures and investment strategies. 5409279