Myth: Private credit is illiquid – investors’ funds are locked in until maturity
In this video, Brett Craig from Aura Credit Holdings addresses the myth that private credit is illiquid and funds are locked until maturity. He explains that the Aura Private Credit Income Fund offers monthly liquidity windows, allowing investors to redeem funds from available cash or loan repayments.
You can watch the full 13-minute video on myth busting private credit here.
Transcript:
Roger:
There are some ways to mitigate liquidity risks and I note for example, your funds don’t have lockups, which competing funds do, and they have shorter terms, the loan book itself has shorter terms. Explain to me how that feeds back into a superior or satisfactory or acceptable liquidity picture for investors.
Brett:
Yep, our fund offers monthly liquidity windows to investors. Every Investors has the opportunity to put in a redemption request on a monthly basis. We will firstly pay that redemption out of available cash, which can be incoming investors coming through, or the cash we naturally have sitting in the fund.
The second way which we will look to get liquidity is by, the loans or the underlying assets maturing. So, the principal and interest will be repaid, and that goes back to investors.
Roger:
So let’s just talk about an extreme scenario, where every investor wants to redeem at the same time?
Brett:
We would look to firstly pay all the available cash out of the fund. From that point, you go into a gating procedure.
Roger:
Which is common to all funds, all managed funds?
Brett:
All managed funds in Australia will have some kind of gating mechanism in there to ensure that investors aren’t disadvantaged.
So, what we would look to do at that point in time – if 100 per cent of investors would look to redeem their capital, we would gate the fund, and we would stop all new lending in our warehouses. So, any principal and interest repayments would come through, and everyone would be paid out. All investors would be paid out their pro-rata proportion of that inflow of capital, and we would continue to do that. Just to give you some context on the runoff profile for the fund, at the back end of July, the fund had 75 per cent of its assets or the underlying loans maturing within three months. So, you can see that they do come back relatively rapidly.
Disclaimer
The Aura Private Credit Income Fund is an unregistered managed investment scheme for wholesale clients only and is issued under an Information Memorandum by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887)(Aura Group).
This information is for wholesale or sophisticated investors only and is provided by Montgomery Investment Management Pty Ltd (ABN 73 139 161 701, AFSL No. 354 564)(Montgomery) as the authorised distributor of the Fund. An investment in the Fund must be through a valid online application form accompanying the Information Memorandum.
The information provided is general in nature and does not take into account your investment objectives, financial situation or particular needs. Before making an investment decision you should read the Information Memorandum and (if appropriate) seek professional advice from a licensed financial advisor to determine whether the investment is suitable for you.
Montgomery and Aura Credit Holdings Pty Ltd (ACN 656 261 200, CAR 1297296) (Aura Credit Holdings), who is the Investment Manager of the Fund do not guarantee the performance of the Fund, the repayment of any capital or any rate of return. Investing in any financial product is subject to investment risk including possible loss. Past performance is not a reliable indicator of future performance. Information in this report may be based on information provided by third parties that may not have been verified.
Where information provided by Brett Craig, Portfolio Manager of the Fund, consists of General Advice, this is provided as an Authorised Representative (AR No. 001298683) of Montgomery.
Aura Group has entered into a Distribution Partner Agreement (Distribution Agreement) with Montgomery to distribute the Fund to its client base. Montgomery may receive a share of the fees you pay as well as potential equity in Aura Credit Holdings.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
