In the latest Meet the Managers profile, Money Management speaks to Metrics Credit Partners managing partner Andrew Lockhart.
Lockhart has 30 years’ experience in funds management specialising in leverage and acquisition finance as well as corporate and institutional lending.
Alternative asset manager Metrics Credit Partners specialises in fixed income, private credit and equities and runs 19 funds. This includes four unlisted wholesale funds; Diversified Australian Senior Loan fund, Real Estate Debt, Secured Private Debt and Credit Trust.
It also has three options for retail investors; Master Income Trust, Income Opportunities Trust and Direct Income fund.
The oldest, the $1.7 billion Master Income Trust which was launched in October 2017, has returned 5.9 per cent over three years to 31 August 2023 compared to returns of 4.6 per cent by its benchmark.
Read on as Lockhart discusses the firm’s fund range, opportunities in the property market and the future for the business.
Money Management (MM): What is the investment philosophy of the business and the wider product offering?
Andrew Lockhart, Metrics (AL): The philosophy of the business is very much around private markets and accessing or giving investors access to private markets. Private markets in debt or private markets in equity is a pretty broad asset class so it’s very important that you can then segment your risk and return objectives and your liquidity features to meet the demands of individual investors.
Lending to, say, an investment grade publicly listed company like Woolworths is going to be very different to, say, lending to a private property developer who is undertaking a project.
Both might be very sensible, acceptable credit risks, but the return will be a function of the availability of capital, the origination of the relationship that we as a lender have with that company and the competitiveness of the banks and others that are chasing those assets for their own balance sheet.
So what we’ve sought to do with our funds is really create products that meet portfolio allocation decisions for investors. They are designed to be more stable, well diversified, giving investors predictable income from directly originated loans.
The general philosophy of our business is we seek to deliver investors with capital stability and an attractive source of income from directly originated loans with Australian and New Zealand based companies. We prefer to lend for short periods of time because we think it reduces credit risk, reduces market risk, increases the liquidity and gives us opportunities to generate fee income for our investors.
MM: Metrics has created a range of different funds to meet investor demand, do you think you’ve got the market covered now?
AL: We are seeing increasing interest in our real estate equity funds. And so there are really three limbs to our business. One is private debt, which is the most significant component of our business, private equity in real estate transactions and non-controlled private equity positions that we hold in operating companies, where we’ve lent money and also then taken or secured an equity position in that company for our investors.
But on the real estate equity side, we are seeing continued growth and demand there. We would be the largest non-bank lender to the real estate sector in Australia. We have a bit over $9 billion of real estate debt. And off the back of that, that’s given us access to some really good opportunities, not only as a lender, but also to partner with our clients and support them at different projects with a direct equity investment in those as well.
MM: Which bit of the business do you enjoy the most, raising funds under management or deploying the cash?
AL: I like both. They’re both challenging. At the end of it, raising capital is not easy. And we’ve been at it now for about 11 or 12 years. We’ve been fortunate that we now manage a business that’s got a bit over $15 billion of AUM. But I genuinely enjoy seeing the projects and the companies that we finance, it’s great to see companies that are successful. Access to capital, access to debt financing is not easy either for companies.
What I like about it is that the companies that we deal with, we look to have long-term relationships with them and we want to do repeat business with them. You do develop a strong relationship and an understanding of the company or the project that you’re financing. To see those come together and people be successful or projects being delivered is a real benefit and something that I enjoy a lot.
MM: We’re all very familiar with the housing crisis in Australia, have you had to work hard with adviser to paint a picture of the rationale for investing in these types of funds over other asset classes?
AL: Well and truly. I think I’ve spent legitimately 12 years since first starting Metrics with my partners, really trying to provide education and information to people to understand it. I remember going to meetings early on with senior research people in fixed income who only ever thought about public market bonds and didn’t realise or didn’t even think about how banks use those proceeds to lend to larger companies. And so it has been a process of education.
People are naturally sceptical. They want to understand if their money is going to be safe. Is it invested with a firm that’s reputable? What’s the track record of the manager? So over 10 years, it takes time to build that up. One thing I’m conscious of at the moment is a lot of people have seen us have some degree of success and I think there then becomes a position that all managers operating in private debt markets are the same. And that couldn’t be further from the truth.
I’m very conscious of the fact that, you know, we’re dealing with other people’s money and we need to be very sensible and do take appropriate risks to manage that capital for our investors.
MM: What do the next five years look like for Metrics Credit Partners?
AL: I think we’re certainly very keen to continue to grow our three limbs. So private debt, both in large scale corporates but also equally looking to expand our business to deal with SMEs and consumer financing. We’re in the process of building that out and have hopefully got some good plans there that will come out in the not too distant future.
We are strong in the direct lending to larger corporates and across four or five parts of the market. So loans to both financial sponsor, non-financial sponsor companies, private equity and non-private equity owned companies, property transactions and project and infrastructure financing.
And then the other limbs that we would like to really see continue to grow is obviously private equity and real estate transactions. We think that’s a significant opportunity for us and giving our clients exposure to private development, property development opportunities, I think is quite a unique investment proposition for a lot of clients.
To listen the full interview with Andrew Lockhart and a range of other experts, you can access the Relative Return podcast here.
