How private debt is taking on the banks

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One of the many fallouts from the global financial crisis is the development of a robust private debt market – not just internationally, but also in Australia and New Zealand. Where the banks exited, fund managers entered. And, it seems, they are doing it better.

An Australian-based private debt manager that has been attracting the attention of institutional investors is Manning Asset Management. There are others, such as Metrics, Perpetual Investments and Partners Group (not Australian), which are all a little different. This is Manning’s story.

Manning Asset Management was started in 2015 by Josh Manning, a former consultant at JANA Investment Advisors and was later joined by Adrian Bentley, ex Head of Debt Finance at Macquarie Bank, and a handful of seasoned debt experts. It launched its Aussie-domiciled unit trust in April, 2016. The trust aims for a return of the RBA cash rate plus 5 per cent net of fees, over a five-year rolling period and has delivered an annualised net return of 6.42% p.a. (since inception). Their marketing representative is David Edwards, of Sydney-based third-party marketing firm Akindred.

Manning said that when he left JANA in 2015, he was looking to take some of the risk out of his personal investment portfolio by adding high quality loans. “I didn’t foresee the Royal Commission and the other changes which followed,” he said, “but the trends played into our hands.”

Bentley notes debt currently represents an unusually small part of domestic investors portfolios in an international context, with ‘cash’ traditionally being either to provide liquidity, or as somewhere you parked your money when considering what equities or bonds to invest in.

“With cash yields so low, and banks focusing on an increasingly narrow customer set, investors are increasingly accepting that well managed credit risk originated by non bank lenders can provide an attractive risk adjusted return that complements their traditional equities/bonds/cash allocations.”

With private debt investments, the risk/return position is similar to that of property or equities, but there is not a strong correlation with the share market. “We are fundamental managers and not so worried about the listed markets,” Manning says.

The firm is not a lender, rather it works with specialist lenders to fund a selection of the loans they originate. It targets high quality shorter-term business loans, consumer loans and mortgages, favouring floating-rate loans. “We think we are playing an important role in providing funding to parts of the market that traditional lenders are not servicing well” Manning says. “There is a genuine need for this finance and this is the right environment for it.”

The firm has a strong ESG culture, such that it does not get into pay-day lending or similar practices.

Edwards says that Manning AM has built a three-year track record and is offering a diversified portfolio for investors, who also represent a diversified client base, from financial planner clients, though to high-net-worth investors and family office clients.

– G.B.

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