Selecting the right private debt fund for clients

private debt Zenith Investment partners private credit

24 June 2024
| By Laura Dew |
image
image
expand image

With the private debt marketplace described as a “minefield” to navigate, research house Zenith Investment Partners has shared tips to help advisers select the right fund.

Private debt is among the growing asset class of alternatives as investors seek alternative sources of income. Types of products can include corporate lending-bilateral, corporate lending-syndicated, PE sponsor-backed lending or real estate.

Advisers like the products as they generate attractive risk-adjusted returns, structural protection, and minimal mark-to-market volatility, Zenith said, but problems arise around its default risk and illiquidity.

Key considerations as to whether it will be suitable for a client’s portfolio include their asset allocation alignment, whether they are growth or defensive, and broader liquidity challenges.

Rodney Sebire, head of alternatives and global fixed income at Zenith, said: “Including a private debt fund in a client’s portfolio is complex as it involves identifying the expected risk/return, performance in negative equity environments, and alignment to the client’s growth or defensive allocation. The reliability of cash distributions and regular access to capital are key considerations. What if a manager were to freeze redemptions, would this create asset allocation imbalances and broader liquidity challenges?”

Another topic that advisers need to consider is the subject of fees as these may be higher than clients are used to paying for other assets. He said it is a topic examined by Zenith when considering a funds’ inclusion in the Approved Product List as there is no uniformity yet in disclosure practices by managers.

“Fees and costs have always been a murky topic, with many funds not subject to the RG97 fee disclosure regime. The payment or collection of fees across managers varies significantly, including the types of fees charged and the beneficiary of those fees. Managers may retain a portion of the borrower-paid margins or penalty interest. In many instances, the costs of a private debt fund exceed 2 per cent per annum, subject to the type of lending and a manager’s approach to sharing lending fees with investors. 

“This remains a key focus area for Zenith and an area where we are yet to gain complete comfort (apart from a small number of institutional quality managers that we have on our Approved Product List), noting that the universe has yet to achieve uniformity in terms of disclosure practices.”

Earlier this year, alternative asset manager HMC Capital acquired private real estate debt manager Payton Capital to establish a private credit platform, while Pengana Capital Group raised $160 million in its IPO for its Global Private Credit Trust.

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Shareholder

Get rid of the rest of the old guard to clean up the culture, then you might have a chance....

2 days 23 hours ago
Ray Mitchell

The previous directors and managers of both Dixon Advisory and the ultimate holding company Evans and Partners should be...

3 days 11 hours ago
Old Fella

Why would any Licensee invest in educating and training new advisers, when as soon as the handcuffs come off, they will ...

3 days 15 hours ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

4 days 1 hour ago

ASIC has obtained interim orders from the Federal Court to freeze the assets of a registered managed fund and prevent its former director from leaving Australia. ...

3 weeks 4 days ago

The $280 billion Australian Retirement Trust is the first superannuation fund off the block to report its performance for the 2023-24 financial year....

2 weeks ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND