We look at their ability to repay their debt and we take senior secured loans,”

Davis says. He believes that the time is opportune for super funds and other institutional investors to fill the gap vacated by the banks, both from an investment perspective and a social one, given that the SME sector is the major employer in the Australian economy.

Figures on this sort of lending in the Australian market are scant, however Davis says that in the

US
the consumer finance and SME borrowing market over a cycle will have defaults
of about 2 per cent. Recovery rates tend to run at about 70-80 per cent. So,
Causeway expects about 1 per cent in defaults, which is factored in to the
overall expected return of 12 per cent a year after fees.

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