Listed investment fund products can let retail investors tap into the fast-growing private debt sector to benefit from its higher-than-average yield and low volatility.

Private debt has grown in popularity over the past decade as a result of its capacity to provide an alternative source of income to equity dividends and bonds. Most investments are made via unlisted funds, but listed products allow investors to access the market for a lower minimum investment – and to also benefit from the daily liquidity of the ASX.

Metrics Credit Partners pioneered listed private debt vehicles in Australia and now offers two listed investment trusts alongside its unlisted funds to allow investors to choose different types of products.

Private debt funds raise money from investors and lend it directly to medium-to-large-sized companies. The returns to investors are generated from the interest and fees paid by those borrowers, minus fund costs.

The global financial crisis sparked the growth of the market as banks were required to become more conservative in their lending in its aftermath.

Why invest?

More conservative funds can deliver a return of around 8 per cent to 9 per cent, an attractive alternative to corporate bonds, hybrids, government bonds or even cash deposits. A higher yield fund can deliver additional returns to provide a favourable alternative to investing in equities for income.

The floating rates offered by many private debt funds also rise with official interest rates to provide a useful hedge against inflation.

Metrics Master Income Trust (ASX: MXT) was listed in October 2017 and seeks to generate monthly income of the RBA cash rate plus 3.25% p.a. (currently 7.60% p.a.) net of fees from a diversified portfolio of around 300 direct corporate loans. The fund returned 9.44% net income over 12 months to 31 March 2024 and 6.01% p.a. net of fees since its inception on 9 October 2017.

Metrics Income Opportunities Trust (ASX: MOT) targets a cash yield of 7% p.a. which is intended to be paid monthly with a total target return of 8%-10% p.a., in each case net of fees. In the 12 months to 31 March 2024, the fund’s total return was 10.44% and since inception (29 April 2024) returned 9.0% p.a.

Listed funds like these offer daily liquidity via on-market trading on the ASX but are exposed to market volatility. Unlisted funds, on the other hand, are not exposed to the daily volatility of the share market but may only allow monthly, or quarterly, redemptions.

Ultimately, the choice between the two fund types will likely depend on individual preference.