Industry Moves: Q&A with Metric’s Andrew Lockhart
Metrics Credit Partners recently launched the Metrics Direct Income Fund. Metrics managing partner Andrew Lockhart spoke to Industry Moves about the fund and why the corporate loan market is likely to prevail.
Why is now a good time to launch a private debt fund?
With interest rates forecast to be at record lows for even longer, an increasing number of investors are seeking alternative sources of income. Investing in a well-diversified portfolio of directly originated loans to Australian companies can provide investors with an investment that can earn a premium in excess of the RBA cash rate. An alternative source of regular income is much needed particularly in an environment where many companies are also having to reduce dividend distributions to shareholders.
Who is it suited for?
The fund is suited to investors seeking regular and reliable income with reduced capital volatility and a defensive strategy that can diversify investment portfolios.
It may also provide an alternative source of income for equity investors who have had their income cut as companies reduce dividend payments.
Is private debt appropriate for retail investors?
Traditionally, investing in directly originated corporate loans was only available to large wholesale investors. Today, accessing the direct corporate loan market is much easier for retail investors, with various listed and unlisted investment options providing additional liquidity, compared with term deposits or bonds which may require investors to lock away cash for fixed terms. Like all fixed income, it helps to provide portfolio diversification, along with a stable cash yield with low risk of capital loss compared to equities.
This is particularly important for retirees, who generally need to generate regular income to fund their lifestyle needs, while also protecting their capital base.
Metrics lends to corporates of substance alongside and in competition with the banks. These loans are often secured with a range of terms, conditions, covenants and controls which are designed to protect lenders and investors. These include security taken over the company and the assets owned by the company. Lenders often restrict dividends payments, limit any additional debt and can control the use of the loan funds provided to the borrower.
Even in situations where a company defaults a lender may exercise powers under its securities to take control of a company making them some of the most secure retail investments. These protective rights do not exist for equity investors and is a reason why an investment in the debt owed by companies can assist to lower investor volatility.
What is your outlook for the fund (and markets in general) given the current pandemic?
Overall, we’ve seen that the volatility evident in public equity, fixed income and offshore credit markets has largely been absent in Australia’s bank-dominated Corporate Loan Market. It has remained open, as corporates here still have to borrow and refinance their existing loans – and pay interest on them. That interest repayment is increasingly being recognised as a source of reliable and consistent income for all types of investors.
While corporate credit liquidity is tightening, and banks are becoming more conservative, we are seeing demand remain from many corporates and are cautiously assessing new lending, as well as actively working with existing borrowers to manage credit risks.
This fund, which is unlisted, comprises in excess of 150 loans to Australian corporates, which removes equity volatility and means no foreign exchange or bond market risk.
Was it difficult to launch a fund during a pandemic?
Investors have been asking for this fund for some time and it represents an unlisted equivalent of the popular MCP Master Income Trust (MXT), which was launched in 2017 and has a market cap of in excess of $1.2 billion.
We are seeing significant interest from retail investors looking for alternative sources of income in this environment. Metrics is already highly regarded as an asset manager through investor experiences in its existing funds. As a leading non-bank corporate lender we have a rigorous lending assessment process, and have no borrowers in default – even during the pandemic.
The Metrics Direct Income Fund has been awarded a ‘Superior’ rating from Australian ratings and is “Highly Recommended” by Zenith, which exemplifies the quality of the management and is important for investors when assessing the opportunity
How do you go about choosing service providers?
The Metrics Direct Income Fund is managed by an expert team with a proven track record in credit risk management who seek to balance the delivery of attractive returns with the need to ensure investor capital preservation. In its selection of support service providers, Metrics looks for high quality and committed providers, who have a client-first approach and are focused on assisting Metrics in achieving this overarching objective.
Industry Moves – 23 July 2020
Andrew Lockhart, Managing Partner at Metrics Credit Partners, provided insights into the opportunity and outlook for Australian private debt in…