Private credit transactions are everywhere
In this week’s video insight, I discuss the emerging prominence of private credit transactions in Australia. Following our partnership with Aura Credit Holdings two years ago, we’ve observed a growing interest in private credit as a reliable income source for investors, especially those with self-managed super funds. Recent investments by major international firms into this asset class further underscore its growing appeal.
Transcript:
Hello, I’m David Buckland and welcome to this week’s video insight.
Followers of Montgomery will know that we joined forces with Brett Craig and his team at Aura Credit Holdings two years ago.
The thesis here is that with a powerful demographic tailwind, many ageing Australian investors, either directly or via their self-managed super funds (SMSF) will be examining the private credit asset class to provide regular income for their portfolios.
I have written on many occasions that academics from the London Business School, Elroy Dimson, Paul Marsh, and Mike Staunton, have analysed the returns of several (developed) share market indices since 1900.[1] In summary, they believe an average annual return of around 9 to 10 per cent, inclusive of dividends, is quite typical, although characterised by the considerable volatility of up & down markets.
The private credit asset class, which is relatively mature in most developed markets – including the US, Europe and Asia, but still young in Australia, has to date been offering equity-like returns, but without the associated volatility.
The Aura Private Credit Income Fund, for example, which is designed for wholesale investors, celebrates its 7th anniversary at the end of next month, and has delivered investors an annualised return of 9.63 per cent, assuming reinvestment of the monthly income. And that monthly income has averaged 0.77 per cent, with a range of 0.60 per cent to 0.93 per cent (1).
Montgomery helped introduce the Aura Core Income Fund in October 2022, and whilst the monthly income payment is typically 0.15 per cent lower than its bigger brother, this Fund is positioned further up the collateral stack, meaning it has a greater “margin of safety”.
Interestingly, three other Australian-based organisations have recently joined the Private credit space, highlighting the growing prominence of the asset class domestically
In September 2023, Pacific Current Group Limited (ASX: PAC), which has a market capitalisation of $540 million, paid up to U.S.$40 million to purchase a 25 per cent stake in Avante Capital Partners, an LA-based private credit and structured equity investment management firm.[2]
In May 2024, HMC Capital (ASX:HMC), which has a market capitalisation of $2.65 billion, announced the move into private credit with the acquisition of Payton Capital, a $1.5 billion commercial real estate private credit asset manager for $128 million.[3]
And just a few days ago, Regal Partners (ASX:RPL) agreed to acquire Merricks Capital, a $2.9 billion agriculture, commercial real estate and infrastructure private credit manager for $235 million. The vendors will end up with 64 million shares in Regal Partners, or 20 per cent of the company’s issued capital. [4]
In summary, with many investment managers joining the private credit space, it appears Australia is catching up with the rest of the world with private credit becoming a staple in investors’ portfolios. However, like all diverse asset classes, it is crucial to understand the varying risk profiles of the underlying funds on offer and this includes the levels of liquidity and diversification in the underlying portfolios.
That’s all I have time for this week. Please continue to follow us on Facebook and X.
(1). Performance is from 1 August 2017 to 30 April 2024. Past performance is not a reliable indicator of future performance.
Disclaimer
Find out more about the Aura Private Credit Funds
You should read the relevant Product Disclosure Statement (PDS) or Information Memorandum (IM) before deciding to acquire any investment products.
Past performance is not an indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.
This information is provided by Montgomery Investment Management Pty Ltd (ACN 139 161 701 | AFSL 354564) (Montgomery) as authorised distributor of the Aura Core Income Fund (ARSN 658 462 652) (Fund). As authorised distributor, Montgomery is entitled to earn distribution fees paid by the investment manager and may be issued equity in the investment manager or entities associated with the investment manager.
The Aura Core Income Fund (ARSN 658 462 652)(Fund) is issued by One Managed Investment Funds Limited (ACN 117 400 987 | AFSL 297042) (OMIFL) as responsible entity for the Fund. Aura Credit Holdings Pty Ltd (ACN 656 261 200) (ACH) is the investment manager of the Fund and operates as a Corporate Authorised Representative (CAR 1297296) of Aura Capital Pty Ltd (ACN 143 700 887 | AFSL 366230).
You should obtain and carefully consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the Aura Core Income Fund before making any decision about whether to acquire or continue to hold an interest in the Fund. Applications for units in the Fund can only be made through the online application form. The PDS, TMD, continuous disclosure notices and relevant application form may be obtained from www.oneinvestment.com.au/auracoreincomefund or from Montgomery.
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).
Any financial product advice given is of a general nature only. The information has been provided without taking into account the investment objectives, financial situation or needs of any particular investor. Therefore, before acting on the information contained in this report you should seek professional advice and consider whether the information is appropriate in light of your objectives, financial situation and needs.
Montgomery, ACH and OMIFL 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.
[1] Elroy Dimson, Paul Marsh, Mike Staunton; Credit Suisse Global Investment Returns Yearbook 2021 Summary Edition; March 2021; pages 13-15.
[2] Source: ASX, Pacific Current Group
[4] Source: ASX, Regal Partners
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
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.
