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Debt funds put listings on ice amid LIT review

More global debt funds are deferring planned listings on the Australian Securities Exchange after fixed income giant PIMCO cited the Treasury’s review into stamping fees for delaying its much-awaited offering.

The $2.6 billion global fixed income giant had planned an initial public offering of a corporate debt fund but confirmed it would wait for clarity after Treasury announced a review into stamping fees.

The stamping fees review followed reports and commentary by The Australian Financial Review that questioned “conflicted remuneration” in the sector.

Other international managers that intended to undertake offerings are now also reconsidering the timing of their fund raisings.

Among global corporate debt managers that had pre-marketed raisings is CVC Credit Partners.

CVC’s private debt fund had planned to invest in European and US direct loans and intended to launch the offer in the first half of 2020.

But sources involved in the CVC offer said the manager was “closely watching” developments after the government’s consultation was announced.

CVC Credit Partners, which has $US23.9 billion ($34.6 billion) invested in sub-investment grade corporate credit markets in Europe and North America and is run out of London and New York.

The fund’s portfolio managers have made several visits to Australia since November 2018 and have met with brokers, financial advisers, superannuation funds and asset consultants ahead of a planned deal.

Los-Angeles based Guggenheim, which has $270 billion of assets under management is also understood to be planning a debt fund offering.

Listed investment company (LIC) and listed investment trust (LIT) raisings have boomed in the last three years as the size of the market has doubled.

This, according to some observers, is because brokers and advisers are exploiting a regulatory loophole that allows them to earn a commission from selling a listed fund.

Brokers involved in the majority of listed fund offers said commissions seldom exceeded 1.5 per cent.

In recent months, the fund raisings has been dominated by fixed income or corporate debt funds.

Already this year, global asset manager Neuberger Berman and Australian loan manager Metrics Credit Partners have conducted follow-on raisings to existing deals.

The recent wave of debt funds pay target distributions to investors and have tended to trade at premiums to the net asset value.
Critics say the offers are risky and complex and that advisers and brokers are only allocating to these investments because of the commissions, while backers say the products are of a high quality and are meeting a growing need among investors for yield.

Financial Review | February 03, 2020