Did this $3.4 billion Black Swan event just put your superannuation at risk?

A top analyst highlights serious potential risks for millions of Aussie's superannuation accounts.

"Could the next financial crisis already be sitting inside your superannuation account?" Wealth Within chief analyst and founder Dale Gillham posited over the weekend.

"It sounds alarmist, but regulators are increasingly asking it as Australia's private credit market has grown to around $250 billion," he added.

That compares to Australia's total super assets of around $4.4 trillion.

Retirement plan written on a chalkboard with increasing bar graphs and dollar signs on top.

Image source: Getty Images

What new crisis is brewing for superannuation accounts?

The crisis Gillham is talking about is the recent collapse of residential property developer Bathla Group.

Amid slumping property sales, high interest rates, and rising labour and material costs, Bathla entered into voluntary administration in August. The company has around $3.4 billion in liabilities, which are largely held by private credit lenders.

Gillham said the collapse has exposed dangerous cracks in Australia's private credit market, putting millions of superannuation accounts at risk amid ongoing elevated interest rates.

The level of that risk will depend, to some extent, on how soon you plan to retire, and in which asset classes you've invested your superannuation.

"ASIC has repeatedly highlighted the growing connection between private credit and the super sector, warning investors to better understand the risks involved," Gillham said.

He noted:

What was once a niche corner of finance has become one of the country's fastest-growing sources of funding. Most Australians have probably never heard of private credit. Yet many could already have exposure through their superannuation.

The bigger picture

Gillham said that Bathla's collapse wasn't the real story behind the growing risk to millions of superannuation accounts. However, the property developer's insolvency had "thrust those risks into the spotlight".

He said, "The real issue is that many of the conditions that could place pressure on private credit are already emerging."

Gillham explained:

Interest rates remain elevated, inflation has proven more persistent than many expected, construction costs remain significantly higher than before the pandemic and parts of the property market are beginning to soften.

At the same time, developers who borrowed heavily during years of ultra-low interest rates are being forced to refinance at much higher borrowing costs.

Which would seem to make Bathla a bit of a canary in a coal mine situation.

Indeed, Gillham noted, "Pressure then begins to build across the entire system, and that is where the risk to superannuation begins."

He added:

If several major developers fail within a short period, fund managers may be forced to write down the value of their loans. Those write-downs could then trigger redemption requests from investors seeking to reduce their exposure.

Gillham concluded, "The real risk is that Bathla won't be remembered as an isolated collapse, but as the first domino to fall."

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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