Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Northleaf brings evergreen private credit fund to Australia
Northleaf has offered closed-end private credit funds to investors since 2016, and recently launched a private credit evergreen fund structure. It now plans to introduce new evergreen products across all asset classes it is active in. While open-ended structures are already common in the Australian market, Northleaf will offer an Australian dollar-denominated Australian unit trust “which will provide global exposure without the need for the investor to manage the currency risk.”
“The US$1.2 trillion private credit asset class has proven its resilience over the past 20 years, performing well through both the GFC and the recent COVID-induced global economic shutdown,” said David Ross, managing director and head of private credit at Northleaf.
“… Northleaf has developed an evergreen private credit fund structure, in part, to broaden the investor base and to address the allocation management and administrative requirements of new investors entering the asset class. This may include private wealth clients, endowments and family offices; however, the attributes of evergreen structures can be broadly appealing to all investors.”
Evergreen structures can provide many benefits to private credit investors, Ross says, including immediate exposure to a well-diversified portfolio of private credit investments; consistent quarterly cash yield; a shorter investment period, with capital put to work quickly and efficiently; and enhanced liquidity options and quarterly openings, giving investors the opportunity to rebalance allocations and exposures over time.
“More and more investors are looking to enter private credit or increase their existing allocations,” Ross said. “Top performing private credit funds have provided investors with strong and steady returns and cash distributions through periods of market volatility for several reasons, including their high-quality, diversified portfolios that boast strong borrower fundamentals and low loss rates.”
“We’ve seen that a focus on lending to companies that are owned by private equity fund managers who take a ‘hands-on’ approach to value creation and can provide equity capital support, together with the availability of additional or follow-on private credit capital, has provided a solid foundation for the strong returns generated by this asset class. Many large asset managers with significant operational platforms are familiar with managing their investments through closed-end structures, which are common across private markets.”
In Australia, Northleaf’s private credit team has undertaken a variety of specialty finance activities, including investments in litigation financers Litigation Capital Management and Omni Bridgeway, and QuickFee, an Australia-based provider of lending and payment solutions to accounting and law firms.
