123: Cbus' Linda Cunningham – Pricing Risk in Debt Investments, Private Credit and the Impact of Retail Investors

Note: This episode was recorded before the release of ASIC's Private Credit Surveillance Report 820. The ASIC report mentioned in the podcast relates to the Private Credit in Australia Report 814, released in September 2025. In this episode of The [i3] podcast, I'm speaking with Linda Cunningham, who is the Head of Debt and Alternatives for Cbus Super. We talk about some of Linda's core beliefs when it comes to debt investing, including the banking 101, to be very careful when borrowing short and lending long at the same time. We discuss the importance of cash flows and ensuring the ability of a borrower to pay their interest. We discuss liquidity mortgage funds and private credit funds aimed at retail investors, as well as the occasional funky fee structure. We even talk about how Linda once provided a loan to finance a catamaran called the soggy moggy. Enjoy the show! __________ Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights _____________ Overview of podcast with Linda Cunningham, Head of Debt and Alternatives, Cbus 03:00 My father was a bank manager and I wanted to get into banking at an early age 04:00 In year nine, I had a discussion with a teacher about the difference between a bank and a building society 05:30 Late 80s, the property market was booming, but interest rates were high. One of my jobs was to drive to Geelong and go through the credit files. One of the lessons out of that was how important cash flow is for a loan. Where is the interest coming from to pay you? 11:30 Matching liquidity profiles, the case of AXA products marketed to retail clients. "Having daily liquidity is great, until it is not" 17:30 You can finance anything, I've financed a catamaran, but it is about where it sits in the portfolio 18:30 Setting up the internal credit capability for Cbus. "You are coming from a bank and so you don't think about who is going to communicate with the borrower what the interest rate is" 19:30 "I started in 2016, but we didn't write our first loan until 2019" 20:30 Financing a catamaran, the 'Soggy Moggy'. 22:30 Debt is not like equities; you can't just go out and buy a ready-made portfolio 32:00 There is no pressure for us to allocate money [to loans], we can give that money to managers 34:00 On occasion, we are seeing some 'funky [fee] structures'. 36:00 Private credit is not new; there have been mortgage funds operating in Australia for at least 30 years 38:00 What is getting more focus is: where is the private credit sector getting its money from? 40:00 I do worry about the flow-on effect from what is happening in retail products 41:30 The market is very competitive on loan transactions at the moment, are people pricing risk appropriately? 45:00 It takes someone really strong, who gets paid on funds under management, to say no to the funds, whereas at Cbus we don't have that tension. I can look at other credit managers 49:00 On the internal front, we would like to do a little more construction deals. We think there is going to be a little more residential over the next year or so 50:00 We are not sure if in affordable housing equity is the way to go. But we do think that with debt you get an appropriate return for your risk Full Transcript of Episode 123 Wouter Klijn 01:16 In this episode of The [i3] podcast, I'm speaking with Linda Cunningham, who is the head of debt and alternatives for Cbus Super. We talk about some of Linda's core beliefs when it comes to debt investing, including the banking 101, to be very careful when borrowing short and lending long at the same time. We discuss the importance of cash flows and ensuring the ability of a borrower to pay their interest. We discuss liquidity mortgage funds and private credit funds aimed at retail investors, as well as the occasional funky fee structure. And of course, we delve into the state of the private credit market and ASIC's recent comments on the sector. We even talk about how Linda once provided a loan to finance a catamaran called the soggy moggy. Enjoy the show! Linda Cunningham 02:06 Linda. Welcome to the podcast. Thanks for having me, Wouter. Wouter Klijn 02:09 So your journey started a bit unusually compared to maybe some of your peers. I believe you started in the industry when you were just 15 years old. How did that happen? Linda Cunningham 02:20 That's correct look, and I'm going to age myself here, but we are talking, you know, the early 1980s I had grown up. My father was a bank manager, so I had, from a very early age been exposed to banking, and by the time I was finishing year 10, I had a decision to make, which was, you know, Did I did I want to go on to year 12? Did I want to go on to university? I knew I wanted to end up in banking. Superannuation funds didn't really exist at that time, but I knew I wanted to get into the lending side of ...