Ensuring private market funds can meet client redemptions
Two fund managers have shared how they aim to ensure their private markets funds can meet their liquidity terms.
Speaking on a Morningstar webinar, Lucie Bishop from Revolution Asset Management and John Woods from Australian Ethical discussed the convergence of public and private markets.
The pair were asked by moderator Matt Olsen, director of manager research ratings at Morningstar, whether they believed these types of funds could meet their monthly liquidity terms.
Speaking to Money Management earlier this month, financial adviser Andrew Saikal-Skea explained how he was nervous about liquidity following his experiences during the global financial crisis (GFC) which was deterring him from private market funds.
“I’ve experienced frozen funds during the GFC and maybe that’s been forgotten, but it’s not a place where you want to be as a client or an adviser. It’s not a happy position to end up in.”
Responding to Olsen, portfolio manager Bishop replied: “You have to be really careful to understand what you are signing up for and what the construct is of the fund’s terms. We are always conscious not to promise something that we cannot deliver. There are a lot of products out there that will offer liquidity, but the underlying asset doesn’t match that.
“From an investor perspective, it is really important to understand the redemption terms compared to the underlying assets, and that’s because people don’t think about liquidity until it’s needed and it isn’t there.
“We’ve always been conscious to communicate how redemptions are dealt with and structure funds in a way where we will not need to fire-sell any assets if there are any redemptions, which is a benefit for the investors looking to redeem and the ones remaining in the fund.”
Woods, deputy chief investment officer at Australian Ethical, said: “The key for us is the underlying assets need to be able to support the liquidity on offer; that can be the case in private credit because you are receiving interest payments. You are looking for amortising loans which are generating liquidity.
“We have a fund that offers redemptions on a quarterly basis, but the key you are looking for is the underlying asset being supported, not an assumption of pre-payments, not an assumption of being able to sell an asset on the secondary market.”
Specialist investment manager Revolution offers a wholesale Private Debt fund while Australian Ethical offers an wholesale Infrastructure Debt fund, both with quarterly redemptions.
AUTHOR
Laura Dew
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