More than return: Managing risk in real estate private credit
- November 1, 2023: Vol. 15, Number 10

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More than return: Managing risk in real estate private credit

by Matthew Afflitto

Australian real estate private credit can offer investors asset-backed security and compelling risk-adjusted returns in rocky and uncertain times — such as those we are facing at present.

Fund managers and investors are primarily concerned with two aspects when deploying capital: risk and return. While the concept of return is broadly well understood, managing risk in the real estate private debt sphere is often less so. This stresses the importance of knowing how risk can be reduced and mitigated, and the common instruments and tools used to achieve this for the benefit of investors.

How do fund managers reduce and/or mitigate risk in a heightened risk environment?

Perhaps surprisingly, the answer to this question should be the same regardless of the prevailing risk environment, as good debt managers should always plan for and structure a loan based on a “worst-case scenario”. Due to the asymmetric return profile of debt investing, good

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