This is Business Weekend with Edward Boyd.

Hello and welcome to Business Weekend.

I'm Edward Boyd.

Coming up.

This week, the Bureau of Statistics began its new monthly release of inflation numbers, which brings Australia in line with other G twenty countries.

Unfortunately for Treasurer Jim Chalmers, the numbers weren't pretty headline.

Inflation shocked forecasters by jumping to its highest level since June twenty twenty four.

I'll be joined by Australia's Chief Statistician, Doctor David Gruen, whose team created this new data series.

Now that we've moved to a complete monthly CPI are the seasonal patterns which are now monthly rather than quarterly are not exactly the same.

We'll also speak to former Reserve Bank Assistant Governor Lucy Ellis, who's now the chief economist at Westpac, to get her reaction to the inflation figures and aprah's crackdown on lending announced earlier this week.

You now can't really say all the RBA needs to keep rates high because of the housing market that's already been dealt with.

I also visit nuclear medicine and molecular imaging company Syclo Farm and speak to its chief executive, James McBrayer about the specialized manufacturing process, the outlook, and its growth strategy for the United States.

I think when you look at our advancements in the US market, we've implemented technic ascids some pretty important key opinion leader sites.

Plus we do a deep dive into the booming private credit sector with Mark Pintot, the global head of private credit for Moody's Ratings, and we visit a new type of retirement village.

This one is a high rise building in the middle of the city.

But first, headline inflation jumped to three point eight percent at an annual rate in October, and trimmed meat inflation, which the RBA watches closely, lifted to three point three percent straight.

Traders are now starting to believe rates could rise next year, perhaps during May.

I spoke to Westpac chief economist Lucy Ellis about inflation, the GDP numbers next week, and afra's recent crackdown on high debt to income lending.

The headline number was as we expected, and the trim mean was not that different from our expectations.

I think the market was more surprised than we were.

It does suggest there's a bit more inflation in the system than people thought, but a lot of that is actually coming from things that are not about domestic demand pushing up prices.

So much of the very high numbers within the overall basket were driven by policy things like water bills in Sydney, the electricity rebates over the year winding off, and there have also been the usual one off things on certain foods because of weather and supply shortages, and veal was up quite a bit, lamb was up quite a bit, and while egg prices are now falling over the year, they still well up.

Coffee is a known global issue.

Again, none of this is about strong domestic demand pushing up prices.

There are some supply things going on, and there are some government policies at all levels of government that have been running those parts of the inflation basket higher than the average.

That doesn't mean we shouldn't be concerned.

There are some elements of the rest of the inflation basket that are a little bit high, but we shouldn't overblow this result.

Yes, some economists are now suggesting that there will be an interest rate rise in May twenty twenty six.

I mean, could we have a situation where rates may need to go up next year.

It's not what we expect.

You can certainly tell a potential future story where that happens.

To do that, you really have to believe that inflation continues to roll on at these sort of higher levels or higher and that the demand growth that we're seeing, the output growth that we're seeing, butts up against supply capacity.

And our assessment of what's likely to turn up in the National accounts next week is that actually supply capacity is also improving and we don't expect there to be this sort of demand pressure on overall supply.

We think that this is actually the economy finally healing and the boot coming off the neck of the Australian consumer, so that we're getting back to a decent level of growth rather than it being weak as it has been the last couple of years.

The RBA's obviously been on that narrow path strategy.

I mean, if they do have to lift rates next to you, is that a bit of a blow to their credibility and that narrow path that they've been on.

I think we need to have some perspective here inflations come down a long way, very similar to the declines in inflation in peer economies such as Canada, and we've done it with a lot less of a hit to growth and in particular to unemployment.

The fact that unemployment is still in that four point three four point four range is an incredible achievement.

And I think a lot of the reason why people are now starting to worry that this is inflationary is because they do have a very pessimistic view of Australia's capacity to grow, and I think views can differ there.

The other news this week was APRA announcing debt to income limits in regards to mortgage lending.

Are you surprised that OPRA is getting on the front foot here to preemptively place restrictions on lending.

It was quite a preemptive announcement at proce that overall mortgage lending standards are sound, they're not really seeing a big increase in risky lending.

But it seems that what they're trying to do is rain in a few lenders that are perhaps more risky than others and bring them back to the pack.

And that's a little bit of what they were doing in twenty fourteen or twenty seventeen when they had similar kinds of portfolio limits.

They didn't ban particular kinds of loans completely.

They just said, don't do too much of that kind of loan.

So it is quite preemptive given what's happening in the housing market.

And I guess you could say that that is at the margin a little bit dubbish for interest rates, because you now can't really say, oh, the RBA needs to keep rates high because of the housing market that's already been dealt with.

Yeah, you've got a research noe doubt outlining these changes or so called macro prudential tools.

I mean, what impact do you sort of hint it on it there?

Do you expect these rules are going to have on the housing market next year?

Well?

Yes, it brought back memories from my former life in that world.

There have certainly been.

A number of other macro prudential tools that have been used in Australia.

It is important to deal with them carefully.

It's important that these tools are not cutting across good lending practice and I talk about that in my research note about how important it is to have a more individualized assessment of someone's capacity to pay, not just a blanket simple rule, and so the rules are designed.

These tools are designed to work with good practice rather than against it, but you do have to design them carefully.

But they will affect some potential borrowers more than others.

It's a debt to income limit, and that means all your other debts, including perhaps your other mortgages or your business debt if you're a sole trader, or your hex's debt, will count towards this debt to income ratio.

And so for that reason, there will be some people, younger people perhaps who need to borrow more because they're getting into the housing market and they've got some HEX debt.

But also property investors and sole trader business people may find that these rules are a bit more binding for them than they will be for someone who's in different circumstances.

You mentioned this a second ago, but the National accounts will be released next week.

I mean, what are you expecting to see with Australia's economic growth.

We're expecting to see another solid number.

We have an indicator called Westpac Now which now casts what we are seeing in other indicators that are predictive of the National accounts.

And that's another pretty solid number.

I won't put a number on it right now, but in that sort of zero point six point seven point eight, that's a pretty good number for quarterly growth.

We're seeing that pick up in consumer spending finally after a really long period of weakness.

We're also seeing a really pleasing increase in business investment and housing investment, which is a sign that things are becoming unclogged, and also that's supply capacity for later on.

We're seeing investment in data centers, we're seeing investment in other kinds of equipment, and that's saying more supply capacity, more productivity later on.

And our best estimate of what's going to happen to the productivity numbers is also pretty positive.

So we're not seeing this as oh my goodness, demand is too strong and the RBA will have to restrain it.

We're seeing this as demand and supplier both recovering after a really weak patch.

And this is a good sign.

And how important is it to see the private sector really starting to pick up pace again.

Well, the private sect, i'd demand had been really really weak the last couple of years, and it was the public sector that had been accounting for most of the growth in the economy, and you also saw that in the labor market, where the care economy was accounting for eighty ninety percent of the job's growth in twenty twenty two and twenty twenty three and twenty twenty four, so you couldn't see that sustaining.

I mean, a lot of that was about the state government infrastructure projects, which once they complete, they're not replacing them with a new thing that's as big.

So we knew that public investment was go to slow and we've already seen some of that in the data, but public consumption as well.

Some of that was the effect of electricity rebates that have unwound.

Some of that was the strong growth in the NDIS, which really can't keep running at that kind of growth rate for forever.

It's going to have to come down.

We're expecting public demand growth to moderate and normalize.

So you almost needed to see this pick up in private sector demand growth in people spending and businesses investing in order to sustain decent growth in the Australian economy and ensure that there are jobs for people who want them.

Lucy Ella's chief economist at Westpac, Thanks for coming on.

The show.

Always a pleasure ed.

For many years, Australia's economists and the Reserve Bank have relied on the quarterly release of the inflation numbers to help them understand how prices are tracking in our economy and also what it means for interest rates.

This week, after a long project, the Bureau of Stats have started releasing an accurate reading in two monthly inflation, which brings Australia in line with other economies in the G twenty.

I spoke to doctor David Gruin, Australia's chief statistician, about the project price increases and how the trimmed mean number is calculated.

Yes, certainly this has been a long time in the making.

I guess you could say that we started this when we started releasing the monthly CPI indicator in twenty twenty two, and then we approach the government about the possibility of doing a complete monthly CPI which was going to require a substantial upgrade of our IT system, and the government funded that and as you say, it's been it's come to fruition today with the release of eighteen months of complete monthly CPI data.

Yeah, we're recording this on Wednesday, just a few hours after the numbers went live.

Have you received any feedback yet from the government or from I guess the Reserve Bank, who will be looking at these numbers really closely.

So I guess the answer to that is that we provide a very detailed briefing to the Reserve Bank after the release so that we can answer any questions they might have, and so I think that briefing is occurring this afternoon.

But basically we stand ready to clarify anything that's not clear in the release and potentially give more information if that's useful.

But we've certainly released a substantial amount of information today, both with the release of the eighteen months of monthly CPI data, but also analysis of the trimmed mean, which is the preferred measure that the RBA uses for underlying inflation.

Yeah, the figures that came out.

Is there anything noticeable here that's really driving inflation in Australia's economy right now?

So what we released today was the inflation rate for the October month and for the year to October, and the outcome was inflation rate of three point eight percent, which has been widely reported.

And then the trimmed mean measure four using the complete monthly CPI for the year to October is three point three percent.

In the release, we draw attention to some of the areas that contributed most to the outcome, and that's housing, which had a contribution which rose by five point nine percent.

That was one of the one of the parts of the CPI basket that rose by the most.

And within the.

Housing component is electricity and that rose by I think the number is thirty seven percent over the year, and that's largely a consequence of the rolling off of state some state government rebates.

Yeah, I guess those numbers about electricity really show the power of rebates and how bigger component electricity prices are in the basket of goods.

That's true, that's true.

It is worth making the point that the weight of electricity prices in the CPI is declining as people move off the grid, as people increasingly use solar.

So we are capturing that in a declining weight of electricity in the in the CPI as people have some of their electricity supplied by rooftop solar.

And I've just read an economic note from an economist who basically talks about the new way of looking at the trim mean using different seasonal seasonal adjustment measures being applied.

Can you just talk us through a little bit around that.

Sure, So, for a very long time, if we're looking at the quarterly CPI releases, for a very long time, we have you we have we have derived the trimmed mean for the quarter CPI using seasonally adjusted quarterly inflation.

The number that everybody sees quoted is the headline CPI, which doesn't get revised, but we also seasonally adjust all the expenditure classes in the CPI to create a seasonally adjusted quarterly CPI, and it is on the basis of that seasonally adjusted quarterly CPI that we have always calculated the trimmed mean.

Now that we've moved to a complete monthly CPI, the seasonal patterns which are now monthly rather than quarterly, are not exactly the same as the seasonal patterns in the quarterly So we use the same if you like, the same approach, but it's applied to different data and therefore, in general it can give slightly different answers, and that is indeed the case, and we provide a detailed analysis of compar Garrison's in the release that we released on Wednesday, we provide a detailed analysis of the differences between quarterly between the traditional published quarterly measures of the trimmed mean and the new complete monthly measure of the trimmed Mean.

And as I say, there are some there are some differences between them, and we talk about that in some detail in the release.

So the seasonality is different because we're now talking about monthly seasonality rather than quarterly seasonality.

Yeah, because it looks like the old trim mean measure had three percent for last month's figure.

For September's figure, now under the new trim mean measure, September was three point two percent, so slightly higher.

Is this a bit of a worry potentially for the Reserve Bank and their inflation FORCUS because it looks like trim mean inflation has increased slightly.

I think you'll find that when you compare like with like, namely September quarter to September quarter, it's gone from three on the quarterly measure to three point one using the monthly.

So you shouldn't be comparing one year ended month to one year ended quarter.

You should compare the same time period and that in that case, I think the comparison is three on the trimmed mean that we published when we did the quarterly, and the trim mean that we published today using the trim mean we published today using the monthly is three point one.

So there is a small difference, but it's pretty but it's reasonably small.

In the analysis that we provide, we say that we have looked carefully whether either of these series have a bias relative to the headline, and our conclusion is based on the available data, there's not a bias.

And our conclusion is that both measures, whether you calculate them via the quarterly or whether you calculate them y the complete monthly, they're both valid and useful, and they have both they have advantages and disadvantages.

The advantage of the quarterly is that we have a lot that we're more confident of the seasonal pattern.

The advantage of the monthly is that there's more it's more complete data that is used to calculate the trimed mean for the monthly.

For the complete monthly, but the downside is that we only have eighteen months of data for some parts of that complete monthly, and that's usually regarded as we usually would prefer to have three years of data to do seasonal adjustments, so as the time series lengthens, we will become more confident about the seasonality of the complete monthly CPI.

Doctor David grew In, Chief Statistation at the ABS, Thanks for coming on the show.

Thank you very much for having me.

Coming up after the break, I visit sick for Far unique manufacturing facility in Sydney where they make their specialist nuclear medicine product called technic Gas.

Welcome back Nuclear Medicine Company.

Cyclofarm manufactures technic Gas, a radio aerosol used for lung imaging, which was developed by the Australian National University in the nineteen eighties.

The machine can be wheeled around hospitals and works by heating a carbon crucible which contains a small amount of radioactive material which turns into a gas that the patient can then inhale to give doctors a clear view of their lungs.

I visited the Sicklo Farm factory in Sydney this week, where I caught up with the CEO, James mcbraer in the assembly room where Technic Gas machines were being prepped for shipping overseas.

Jameson Brawd, Great to be here just tell us where we are at the moment, so.

Thanks for having me ed ed.

You're actually in the manufacturing rooms for our technogas system.

It's the synthesis module that creates techno gas, our lung ventilation imaging agent.

And what is technic gas For those that aren't aware.

Technic gas is a very unique product.

It's an Australian innovation.

We actually show where oxygen goes in the lung, so it's a true functional ventilation imaging agent.

Here our site here at Kingsgrove, we manufacture the synthesis modules and the patient consumables that are used in delivering our diagnostic technology and.

What sort of patients would require technic gas.

We're mostly known for diagnosing pulmonary embolism in the sixty six countries in which we operate.

That's what we're best known for.

However, because we're a true functional ventilation imaging agent, we're seeing more applications beyond PE things like lung transplant patients.

And we've just now made an announcement about an innovation, a new research innovation that we're involved with about looking at mild to modrow asthma.

This facility is pretty impressive.

I mean, how many employees have you got here.

We've we've got close to eighty on site here.

The business has grown dramatically, particularly with our entry into the US.

We've scaled up to accommodate that that demand.

I know you're big in Canada.

How's it been going in America?

Canada has been our number one market for a number of years.

We've just now launched into the US and it's going it's going great.

I think when you look at at our advancements in the US market, We've we've implemented techno gas.

It's some pretty important key opinion leader sites.

Our pipeline is growing and we're generating revenues in that market.

And the technic gas product just talk us a little bit more about how a patient uses it and can it be reused again and again.

So technic gas is when you when you uh, we're working with techno gas, it's a single patient administration.

Uh.

They take the synthesis module, they take the components that we manufacture here at our site in Kingsgrove.

They had a very small amount of radioactive tracer.

Our technogas system creates these nanosized particles that once inhaled they act like oxygen.

Anywhere that oxygen goes in the lungs, our product is deposited there, and then they image that patient under a gamma camera in a nuclear medicine department.

And how successful has it been, like the take up from medical operators all over the world.

Well, we're in sixty six countries around the world and every market in which we're established, were the agent of choice.

A recent survey show that we're eighty five percent of the market in those established locations.

We talked about America, but we know there's the new Well it's not math new anymore, but President Trump tariffs on pharmaceuticals.

Could that potentially affect your product being shipped to the United States?

Well, we're insulated certainly in the near term.

We had a significant amount of inventory that we had placed already in the US before the tariffs were announced.

The second thing I'd say is that we're also quite unique in that we're the manufacturer, we're the exporter, where the importer, and we're the distributor.

So we have our hands on a number of levers that a lot of companies outside the US don't have.

And I think the third thing is it's still up for grabs as far as what's happening with that decision.

I think it was heard before the Supreme Court on the fifth of November, and we should be hearing in the next few months if those executive orders are going to stick.

So you're sort of in a unique position where as the importer, you will bear the tariff.

Fye yourself.

I don't know if that affect that many people.

No, we're insulated compared to a lot of other countries companies.

Really all right, Look, I know the US FDA have been to this facility in Kingsgrove.

I mean, what's the process like of having those inspectors here.

An FDA inspection usually goes for about two weeks and it's all hands hands on deck.

We've been operating in multiple jurisdictions in multiple regulatory frameworks for years, so we know how to handle an audit.

But the US FDA is a different level altogether.

And what are your targets?

Are your milestones for growth in the United States?

Well, I think the US has got half the world's nuclear medicine departments.

We have about sixteen hundred units in those established markets in sixty five countries around the world.

Half the world's nuclear medicine departments are in the US.

We see the near term in diagnosing pulmonary embolism alone about one hundred and eighty million dollars for US, but we see that growing beyond pe to well over billion dollar potential market.

How are you going to fund your growth prospects?

Well, we've already planted the flag I suppose in the US in the inventory that we've landed there.

Every time that we get a contract and do an installation, it generates revenue.

In fact, even in this early stages in the United States, it's already become the number two revenue generating country for for the consumables.

And plans to establish manufacturing in America.

How concrete are they?

I think it's more from a risk management point of view.

I think you know, our site here has been operating very much bespoke equipment that we have here.

It's just good risk management to have a secondary manufacturing plant somewhere else in the world and talk to.

Me about your third party business as well.

How does that work.

We're in sixty six countries, we're direct in seventeen of those.

In those markets in which we're direct, we saw an opportunity to leverage our regulatory expertise, our salesforce, and our service engineers to offer that sort of operational capabilities.

The third parties, we're leveraging our assets in there and being able to get closer to our customers to drive the growth of technogas.

And when you look around the world, I know America is obviously a huge market, but what about Europe.

We've been Europe used to be and it's going to be.

I guess when you talk about our growth in North America that will take number one.

From a regional point of view.

We've been in Europe for a number of years.

It's our largest region, used to account for close to sixty percent of our revenues.

Just in the technogas side of things.

Canada was always our number one, our number one market for the last ten to fifteen years.

The US is going to eclipse everywhere.

And why has Canada been number one?

It's just we have one hundred percent of the market share, and that's the strength of the technology that we have.

There's nothing like technic gas.

We show true functional ventilation imaging and I think with the advent of improved cameras and AI It's given a level of confidence to the clinicians and sensitivity specificity all of the markers in which that they rely on to provide an accurate diagnosis.

So how's AI working with you now?

AI is opening up a whole different world for technicas.

I mean, we're best known for pulmonary embolism, but when we see what we can do as we demonstrate how oxygen is actually deposited throughout the lung, how it's actually being ventilated in the lungs itself, it has applications across basically every respiratory medicine.

We're seeing the applications in COPD, We're seeing applications in asthma.

It's historically also been used in lung transplant patients lung volume reduction.

But with AI, it gives a whole different level of information to the clinicians, not only from a diagnosis point of view, but a patient management point of view.

And from an investor perspective.

Just give us a sense of your shareholders.

Are you a lot of retail shareholders institutions.

We've got a mixture.

We have a very strong group of investors who have believed in this technology for a number of years and I think probably in the last ten years we've grown our institutional investors.

We don't have a lot of retail.

Some days we don't even trade.

And what are the targets for getting to profitability or are you focused on growth right now?

Well?

I think certainly the US is the growth their growth engine.

Historically, you know, every market that we're in which we're operating, we consider ourselves profitable.

The US is that next the next level and the returns that we're already seeing in those established customers and the trajectory that we have with our pipeline profitabilities is in the near term.

All right, let's bring it back to where we are now.

You are a very niche manufacturer in Australia.

I mean, what's it like being one of the few manufacturers that are sort of left in this country because a lot of moving overseas.

You know, we're very proud of what we've accomplished here and what we continue to accomplish here in We've got a great resource of people that we can we can draw upon, the people that we have for quality, the manufacturing capabilities.

This is our home and we're going to continue to manufacture here.

Is it hard to find skilled labor in this market.

Everyone that we have operating here is is an absolute resource for us.

Skilled skilled operators are are hard to find and when we find them, we want to we want to retain them, and so we have a very low turnover here.

And as a manufacturer, do you get any support from the federal or state governments or anything like that or are you out on your own just do anything?

Yeah, we're we have been able to access some of the R and D incentives, but that's about all we're tapping into at the moment.

All right, and your growth prospects, then over the next twelve months, what have you got?

What have you got in store?

Well, it's uh, it's us, US US.

But that being said, we've always run in parallel the longer term growth objectives of our beyond P strategies.

We've made an announcement just last week about this initiative that we're doing in Canada and looking at mild and moderate asthma and that goes with a number of other initiatives that we're doing to build the application and use for our technology and other and other uses.

James McBride, Chief Executive, Sickle Farm.

Great to talk to you, thanks ed how many roaches are there in private credit.

According to JP Morgan's chief Jamie Diamond, there could certainly be more than one.

After the collapse of US autoparts business First brands.

It comes as Asik has been taking a closer look at the private credit sector here at home, calling out particularly risky lending in real estate and the involvement of unsophisticated investors.

Well, someone who watches the sector closely and knows where to look for these copproaches has a contrarian view to this.

Ingrid Willing spoke with Mark Pinto, global head of Private Credit at Moody's Ratings, and started by asking him to set the scene around the state of the global private credit sector.

Very very basic level.

Private credit is just lending.

People know they can borrow from a bank, they know they can borrow from the public fixed income markets.

This is a new way of borrowing and it's basically funded in the private credit market.

Borrowers are going to the private credit market because they're seeing certain lending relationships that they can't get from the banks or the public fixed income market.

They're getting something that's very bespoke.

They're getting something that they can get very quickly, and they're seeing certainty of execution.

That's being funded not by our deposits which the banks use, but by institutional money that is looking for long dated assets.

So the institutional money could be insurance companies, pension funds, and increasingly high net worth individuals.

There's certainly been a boom in private credit, particularly in recent years.

Do you see that continuing even with the volatility.

We're saying absolutely, and in some cases as volatility increases, this is a tailwind.

For private credit.

So a lot of people say private credit has not been tested, Well, it has been quizzed, and I'll tell you in which instances.

So when we had COVID, for example, the banks pulled back a little bit from their lending activities, the public fixed income markets froze up, the private credit lenders leaned in.

We saw that again in the spring of twenty twenty three when Silicon Valley Bank, one of our banks in the US, went bankrupt, went belly up.

At that same time, we had the same conditions, banks pulling back, public fixing cup markets freezing up, private credit leaned in.

They had growth spirits.

Doing growth spurts during those periods, and I think that the ship of rather the train, has left the station on Private credit is a valuable tool for borrowers and an interesting investment for institutional and retail investors.

Well, Jamie Diamond brought up the analogy of cockroaches with the recent bankruptcies, and I guess the question is is this a trend?

Are there any more?

Are you seeing any evidence of this?

I've been looking for cockroaches, and I would say, well, I would say one cockroach does not a trend make Quite frankly, we look at the trend lines, and the trend lines are telling us that asequality has been fairly stable.

I would also say that this was a reminder when we see these issues like first Brands and try, it's a reminder that you need to focus on underwriting risk.

But what I really wanted to make sure and what we do at Moodies is make sure that this is not a trend and these are more one off.

Asequality trends have been good.

In the private credit funds that we rate, asequality has been good, and quite frankly, the macroeconomic conditions are quite constructive for private credit and credit in general.

We're seeing the FED lowering rates that should be good.

Our own forecast for defaults, which is about five percent.

For high yield bonds, the default rate is about five and a half percent today.

We expect that to go below three percent by the end of next year.

And I would say GDP growth as well has been much more resilient people anticipated.

And all of these conditions lead to I would say, pretty good credit quality for the foreseeable future.

If we were to say a deterioration of credit quality or a turn in the cycle, what sort of signs are you looking for?

So there are four different things that we focus on at Moody's.

The first is underwriting risk.

So by that I'm looking at how are companies lending on what conditions, What are the covenants, What is the documentation that they may be asking for, the collateral that may back the loan in case the borrower can't make the interest payments.

We're seeing some weakening in credit quality, sorry in underwriting standards, not in credit quality as yet, but in underwriting standards.

We're seeing weaker covenants, both in the bank syndicated loan market as well as the private credit direct loan market.

So that's one thing, and we're monitoring that quite closely.

We look for issues with respect to liquidity.

We're not really seeing anything there.

Spreads are quite tight, there's ample money in this market.

We also are looking at asequality.

We talked about that.

No issues at the moment that can turn.

We've got our eyes laser focus on that.

And finally, interconnectivity.

So what's interesting about the rise of private credit is that it's now much more integrated with other financial services providers.

You see banks lending.

To private credit funds.

You're seeing private credit firms buying insurance companies.

So whereas in the past you had sort of banks at the center and sort of shadow bankers around there.

By the way, no longer shadow banking.

Private credit is now what it's called.

It's all grown up today.

And that was sort of a hub and spokes type situation.

Banks at the center and these little companies around.

You have much more of an integrated web.

We're seeing a lot of interconnectivity.

The question is, and this is going to get me the Nobel Prize for Economics when I figured this one out, how does risk move in a downturn Between the insurance companies and the pension firms of the banks, the private credit lenders and the traditional asset managers.

So that's a question that we're trying to answer ourselves and something that we're really focusing on.

I guess it's interesting to see where, you know, private credits coming from.

It used to go you know, for sort of fluent wealth platforms.

Now it's heading to main Street.

What sort of implications do you see from this.

There's quite a lot of implications when you move from Wall Street to main Street.

This tends to be a relatively ill liquid asset.

So this may not be for my mother who is ninety years old or nearly nineties, is gonna be madged.

She's not ninety yet.

It's really for people that are looking to put money away for quite some period of time and don't need that liquidity.

So pension funds, insurance companies, if the retail investors invest in it, they need to invest in it.

With education, I think we need more.

Transparency in this market, and we probably need some more regulatory guardrails to protect consumers from investing in something that they think is going to be very liquid and turns out not to be.

So it's all about education.

It's all about education, education, transparency, and I do think you know, risk is on the move right now right, it's moving out of banks into non banks, it's moving out of highly regulated institutions and markets into very lightly regulated institutions in markets.

And I think in order for this market to grow and grow constructively, we will need more guardrails.

And that's where some of the regulators come in and and and to the point here in this country, we've seen your regulator come out and talk about the private credit market.

Yeah, I mean, what do you think about the Australian credit market, because obviously ASTAK has been trying to crack down.

Yeah.

I would say there's been, uh, they've been quite constructive.

Interestingly, in this current phase.

Of regulation, the regulators are not necessarily seeking to block the growth there's they're looking to make sure that the growth is done in a in a mature manner, if you will.

My sense from ASEK was, and you've seen this around the world.

They want to be a backer, not a blocker.

And even the industry, when you talk to the private credit industry, they're looking for sensible regulation.

They realize that having some guardrails gives them some gravitas in the market and makes people feel more confident.

About investing in private credit.

What sort of opportunities can come from here?

I mean, if we continue to do it well, you know, the right transparency, the right regulation, the right education, then what comes next?

I think you have as this as private credit grows in this market, I think you have more options for borrowers, better lending conditions that borrows are willing to pay up for that.

Investors can take advantage of.

The returns on private credit over the last ten years have been double double digit, mid so fourteen fifteen percent type returns.

I think that's going to come down somewhat because there will be more liquidity in the funds private credit funds that are offered to the retail investors because they want to be able to have that liquidity.

They don't want to lock up their money for ten years, which is the way this market used to work.

Think returns will come down, but I think you could see some better returns, good diversification for investors, and some good lending opportunities for borrowers.

Mark, thank you so much for joining us on the program.

Enjoy the rest of your troop in Australia.

Thank you very much.

I appreciate it.

After the break, we speak to the CEO of retirement village company Lavandae about a new retirement concept that they're attempting in the middle of Sydney.

Welcome back.

Retirement living isn't what it used to be.

Many now what to live active and social lives after retiring, living in close communities and walking distance to amenities.

But with rising land values in an aging population, the solution, according to Lavande, is to go up.

That is twenty eight stories up.

Lavende has designed the tallest retirement village in Australia, the Cambridge, in Sydney's northwest, and it's trying to appeal to a new demografic of retirees.

For more Ingrid Willinge sat down with Leavonde chief executive Kevin McCoy.

Kevin, thanks so much for.

Joining us on Sky and Us today.

Just tell us a bit about Cambridge.

We're at the opening event and what makes it so special.

Cambridge is it's a seven year vision.

It's really special because it's a twenty eight story vertical building bringing together a lot of people from around the Epin community and wider into sort of a fantastic community.

And it's given us the opportunity to offer these sort of amazing amenities and you know, making people thrive in the years of retirement.

You know, we always say the magic doesn't stop just because you retire.

And people are living longer now as well, So.

Can we people do live longer?

Can we talk about the high rise aspect of it though, because this is interesting, this is a relatively new concept for retirement living.

Talk us through what's driven that.

So what we.

Found is consumers.

We do a lot of research obviously, and consumers more and more want to remain in the locality that they've been in for thirty or forty years.

And you'll find that with all of our residents out here, because they're familiar with their GP, the health system around where they are, their bowling club, their bridge club or whatever it is, so they want to stay close to that.

But they still want to experience the sort of community and safety and security and the social aspect you get with being in a retirement village.

And so that's not lending itself to more infill mid rise high rise because those sort of consumers, they don't really want to.

Go to the edge of town and land value as well.

Yeah, the vision was all about co locational and intergenerational and you know you often hear that spoken about it conferences and things like that, but here it does come to life.

We've got the parish component, the school, the church hall and the church itself.

And we've also you may not know this, but Father presbytories on level six, so he's really entwined in the Cambridge itself.

And then really important with the vision is.

To have access to age care so as and when residents need it, you know it's there.

So we've partnered with Opal one hundred and thirty two bed h care facilities.

So yeah, and it's interesting because I know part way through the development you notice that you were.

Getting a lot of orders for the.

Bigger, bigger ones, you know, three bedrooms and I know this is a bit of a trend in the retirement living space.

Why is that what's leading that sort of Is it just more money?

They want more space?

I don't know.

Look, there's a couple of reasons.

And again we've done a lot of research on it, and we think this generation, you know, call them boomers, they want you know, space to live, not space to stay, and so they're looking for larger product two bed with a study or three bed they're coming from five bed, especially around this area, bigger houses, so they want to really down size to something that is a downsize but it's still kind of roomy enough for them.

And also they're quite status driven, so they want to be seen to be there moving up, not down, and they you know, they want to be breaking to their friends and relative and so and say, look we've downsized and we've moved into an apartment sized style living, but look where we are.

Is it a hard decision to make mid development in terms of just costs involved, you know, switching it up midway through very difficult.

So we got to level seventeen and we had thirteen three bedroom units and pre sales they just went flying out the door.

So, you know, we had a real think about it, and we darkened the door of the architect, the builder and Paramount Council and said we're going to throw the plans out for twenty to twenty six and start again.

So we did.

They're all very supportive, great relationships with them.

More and we put in another twenty eight three betters, so up with forty one to three bed units, but we went from one seventy two down to one fifty eight.

Okay, so bold move, but it's worked out.

Is it a tough We all know the planning process can be convlouted and long.

Well everyone knows that.

But you know, I know you've got a state significant development application in I think it's in Kolara site you got from Scockland.

Does that make it easier in a sense?

Is that a stronger argument almost than going through local council because obviously Stockland was Is that are you confident that one will go through?

Look, our preference would be we all work together and sought out hard local councils, operate and speed to market.

That would be our preference, rather than going through some other special way.

The problem with creating a special way is then no one does the hard yards.

They will just wait for the special way and you have unintended consequences through that, Like the VCAT process in Victoria is is not a great experience.

The Lord's one in particular, which you're referring to, that's quite that's been a like an interesting development because it's in quite a sort of a fire area up in Killara.

It's very bushy, so you know, we've got to really work with the Council and the Rural Fire Service and respect their opinions and all of that, because that's you know, you've got a sort of a safety type thing you've got to resolve there.

But we are pressing through the State Significant Development Pathway on that and we are working with all the all the partners.

The only new ones there is there's an HKRE.

Facility involved, which is another open one and that's why it's gone down that pathway all of other developments to stand alone.

So I'm looking forward to doing it too.

Or after need to go shoot some pool and do a lap of the pool.

Yeah, well, I'd love to.

It's pretty hot day to day.

We are for abseiling this after now I know what we.

Would like to see you get on the building.

But thank you so much, much pleasure to talk to you.

Thank you, appreciate your time.

All right, that's all for the show this Sunday.

Up next is all the latest new use right here on sky News.

Business Weekend returns next Sunday, But don't forget.

You can keep up with all the latest business news with our daily program Business Now at four thirty pm Eastern daylight time.

Thanks for your company.

I'm Edward Boyd, we'll see you next week.