Where will baby boomers place their $ 42 billion?

Where will baby boomers place their $ 42 billion?

As we approach September 22, 2025, Westpac is set to alternate all $ 1.7 billion of the Westpac Capital Notes 5 (WCN 5, ASX code: WBCPH). It is the start of an avalanche of cash to return to investors – mostly boomers – who has to find a house elsewhere. Why? Because the hybrid market is closed, closed or phased out.

Westpac Capital Notes 5 Holders receive $ 100 per memorandum, together with a definitive fully stamped distribution of $ 1.211. This follows on the first conditions of the notes, whereby the last day of the trade on 10 September 2025 expired and the record date for payment is 12 September 2025.

The background

Although this may seem like a routine event for some, it is actually a harbinger of much larger shifts in the Australian investment landscape.

This repayment is only one piece of a huge wave of $ 42 billion hybrid effects that will be called back in the next six years. The Australian hybrid market, a staple for income -seeking investors, is effectively declining as a result of legal changes from the Australian Prudential Regulation Authority (APRA).

APRA has imposed the phasing out of this extra tier 1 (AT1) hybrid effects, with new issue on January 1, 2027 and the full transition to a new capital framework that was completed by 2032.

The move is intended to replace hybrids with robust forms of capital for banks, but it leaves a significant void for investors – in particular hybrid holders, many of whom are baby boomers, and their financial advisers who are now looking for suitable alternatives to offer a steady and reliable income.

Where does $ 42 billion go?

Hybrids have been popular because of their higher yields and share -like functions, including cancellation credits in some cases, wrapped in guilty security, but with their extinction on the horizon, where will this $ 42 billion power?

If you haven’t done that yet, it’s time to seriously regard private credit as a compelling replacement.

Private credit can offer an attractive income potential in an environment with a low interest rate, but here it is crucial reservation: not just a private credit is sufficient.

I am in possession of an established Australian broker’s report on mentioned private credit carts. The schedule outlines 12 private credit protections (LITS) with a combined market capitalization of a $ 8.2 billion. And although the comparison emphasizes market capitalization, year-to-date performance, NTA per unit, the revenue of 12 months and goal return, the shortage in various critical areas and says nothing about what investors need to know to compare offers in the private credit space in the right way. Indeed, superficial comparisons based exclusively on goal returns or implicit distribution yields can bring investors astray. Instead, a deeper dive in safety, quality and structural protection is essential.

What should investors know before they invest again?

Current hybrid investors and their advisers will be forced to re -award the proceeds of hybrid sales in the next six years, starting next month.

Private credit funds will be important, there is so much variation in terms of risk and suitability as in the hybrid market. If the times are good, most will perform well. But if economic conditions deteriorate, the results for investors will vary.

Here is a useful list of factors that are essential to better understand the differences in private credit alternatives.

1. Research or funds have been assessed internally or externally. Funds that are assessed internally mark their own homework. Find funds that offer independent external ratings of their portfolios/loan books
2. What are those reviews? A-rated is the highest assessment of investment quality, then AAA, AA, A, BBB, BB and B. Everything under BBB is considered an inspestation.
3. Consider whether the loan book that underlies the fund is exposed to sectors with a higher risk, such as the development of real estate. Investors must look beyond the return and questions or have contributed more risky loans for real estate to generating that return.
4. Research the average ‘duration’ of the loan book. For example, if the average duration is two years old, it could take so long to be refunded if, for example, all investors wanted to take the fund and the ‘Gated’ manager. Gating is a step to limit repayments, so that investors receive their money if the underlying loans are repaid. Search for money with shorter average duration, maybe less than six months.
5. Consider the available protection for investors. Are all loans secured? Which security is offered? What about warehouse structures, credit insurance, registrations for personal real estate protection (PPPR), general safety agreements or guarantees for drivers? Are this protection secured your investment? Are they on all loans, or just some of them?
6. Finally, investigate the concentration of the loan book that underlies the fund. A few very large loans can be considered more risky than thousands of smaller loans. For example, if a fund has only three very large loans, one of them can fail to have a major impact on the capital of investors. If a loan book has many thousands of small loans, one of them has failed to have a limited impact on returns and capital.

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Roger Montgomery is the founder and chairman of Montgomery Investment Management. Roger has more than three decades of experience in fund management and related activities, including stock analysis, stock and derivative strategy, trade and effects. Prior to the establishment of Montgomery, Roger positions in Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

He is also the author of the best -selling investment guide for the stock market, value. Aabel-Hoe to appreciate the best shares and buy them for less than they are worth.

Roger regularly appears on television and radio, and in the press, including ABC Radio and TV, the Australian and Ausbiz. View upcoming media performances.

This message was contributed by a representative of Montgomery Investment Management PTY Limited (AFL No. 354564). The main purpose of this message is to provide factual information and not to provide financial product advice. Moreover, the information provided is not intended to give a recommendation or opinion about a financial product. However, each comments and opinion of opinion can only contain general advice that has been drawn up without taking into account your personal objectives, financial circumstances or needs. Therefore, before acting on the basis of one of the information provided, you must consider the suitability in the light of your personal objectives, financial circumstances and needs and you must consider requesting independent advice from a financial adviser if necessary before you make decisions. This message excludes specific personal advice.