Protecting Capital.
Powering Wealth.

The Manning Monthly Income Fund delivered +0.58% in February (noting the 28 day month, this is equivalent to 0.64% for a 31 day month), 8.73% over 12 months and 9.28% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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The Fund is currently carrying a higher than targeted level of cash due to forthcoming transaction settlements. Typically, monthly fluctuations in returns are due to cash levels within the Fund.

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Geopolitics, Inflation and What Actually Matters

The macro backdrop has become noisier again. Recent conflict in the Middle East has pushed fuel prices higher, and the RBA has explicitly noted that, if sustained, higher fuel prices will add to inflation and that short term inflation expectations have already risen. At the same time, Australian inflation remains sticky, with CPI running at 3.8% in the 12 months to January and trimmed mean inflation at 3.4%. In response, the RBA has resumed tightening this year, on Tuesday lifting the cash rate to 4.10%.

For credit investors, there are two separate questions:

• The first is what these developments do to asset prices and market sentiment.
• The second is what they do to the actual cashflows that service debt.

The former tends to move quickly and dominate headlines. The latter is what ultimately determines repayment and capital outcomes.

Asset Prices vs Cashflows

The distinction is particularly relevant in the current environment. When inflation prints above expectations and rate expectations reprice, duration assets adjust immediately. Government bond yields move higher, credit spreads can widen, and mark to market losses are reflected in portfolios in real time. This is most visible in long duration fixed income strategies, where small moves in yields translate into meaningful price volatility.

This often leads to a feedback loop in investor behaviour. Negative mark to market performance drives sentiment, which in turn can force asset sales into weaker markets, further impacting pricing. In more liquid public markets this process can occur quickly. In less liquid strategies, valuation adjustments may lag but are ultimately driven by the same underlying repricing of discount rates and risk. Importantly, these moves are not necessarily a reflection of underlying credit deterioration. They are primarily a function of how assets are valued, rather than how they perform. A loan can continue to pay exactly as expected, while the market value of that exposure moves materially as discount rates change.

This is where the second question becomes more relevant. From a credit perspective, the key issue is whether the borrower continues to generate sufficient cashflow to meet its obligations, and how the structure responds if performance weakens. Inflation, higher rates and slower growth can all place pressure on borrowers, but the transmission of that pressure depends on how the exposure is structured.

For asset-backed credit in particular, the focus remains on the performance of large pools of underlying loans, rather than on any single borrower or asset valuation. Cashflows are generated by the underlying loan repayments and pass through the structure according to predefined rules. Structural features such as excess spread, subordination and performance triggers are designed to absorb variability in arrears and losses before they impact investor capital. In contrast, in parts of the market where returns are more closely linked to asset values, refinancing conditions or concentrated borrower performance, the same macro developments can have a more direct and immediate impact on outcomes. In practical terms, this is why periods of macro volatility can create a disconnect between headlines and underlying credit performance. Markets tend to focus on price movements and sentiment, while the more relevant question for credit investors remains unchanged: how is the loan being repaid, and what happens if it is not.

Through the Cycle

This is not a new dynamic.

Over the past decade, the Fund has operated through a wide range of market conditions, including periods of elevated geopolitical tension, dislocation during COVID, and more recently, the fastest interest rate tightening cycle in Australia in decades. Each period has been characterised by its own set of concerns, often dominating investor attention at the time. While the underlying drivers differ, the pattern is consistent. Market sentiment adjusts quickly, asset prices reprice, and the narrative shifts. What tends to matter over time is less the specific catalyst and more how exposures are structured to perform through those conditions.

From a portfolio perspective, this is where scenario analysis and stress testing become relevant. While outcomes are never certain, we typically assess how underlying exposures are expected to behave under a range of more challenging conditions, including higher rates, slower growth and elevated arrears. The focus is not on predicting any single scenario, but on understanding how cashflows, credit support and structural features interact if conditions deteriorate.

This approach is intended to provide resilience across cycles, rather than reliance on a particular macro outcome. In practice, periods of uncertainty tend to reinforce the same underlying principles - clarity on how loans are repaid, how risk is absorbed and how structures respond when performance weakens.

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The Fund delivered +1.06% in January and 13.69% over the past 12 months. Since inception, the Fund has continued to deliver its target of over 10% net return above the RBA cash rate, with an annualised return of 14.67% p.a.

Interpreting Credit Headlines in the Right Context

Recent months have seen continued media attention on developments across global credit markets. We are frequently asked how events offshore, or in other segments of lending, relate to our strategies.

The starting point is recognising that “credit” is not a single asset class. It is a broad collection of lending models that differ materially by geography, regulatory framework, borrower type, income mechanics and structural design. Outcomes in one segment do not automatically translate to another.

This is particularly important when interpreting global headlines. Credit markets operate within different legal environments, enforcement regimes and lending conventions. Borrower behaviour, collateral recoveries and restructuring processes can vary significantly across jurisdictions. These differences shape how risk is taken, how losses emerge and how investors are ultimately protected.

Equally, even within a single geography, the term “credit” now captures a wide spectrum of strategies, including non-investment grade corporate lending, construction and development finance, and structured asset-backed facilities, the latter being what our funds invest in. These are all fundamentally different forms of risk exposure, despite often being discussed interchangeably.

Credit Market Structure and the Fund’s Position Within It

Much of the stress reported in credit markets has been concentrated in segments characterised by concentrated exposures, borrower level dependency and valuation sensitivity. This is typical of mid-market corporate lending and construction or development finance, where outcomes are heavily influenced by refinancing conditions, asset values and borrower performance.

In non-investment grade corporate lending in particular, the underwriting framework is fundamentally a borrower cashflow assessment. Capital is typically provided to a single corporate borrower and repayment depends on the operating performance of that business. While security may be taken over assets, those assets do not themselves contractually generate the income used to service the loan. In that sense, repayment remains linked to enterprise value and cash generation at the borrower level.

Asset-backed securities/finance operates differently. A transaction is structured around pools of financial assets that themselves typically generate contractual cashflows which flow through the structure and service the funding. The performance of the assets, rather than the financial health of a single corporate borrower, drives repayment. Risk is managed at the structure level through eligibility criteria, performance triggers and cashflow controls that operate automatically as portfolio metrics change.

The distinction is structural rather than conceptual and these are fundamentally different lending structures which they behave differently through the cycle.

Where Complexity Actually Sits in Credit Markets

The structural distinctions outlined above do not only determine how risk is allocated within a transaction, they also shape how the transaction is executed in practice. Many credit transactions, particularly those involving tailored structures require extensive structural design and legal coordination before capital can be deployed. In these cases, risk is shaped not only by borrower performance or market conditions, but by how the transaction itself is constructed and implemented.

For highly structured strategies like the Manning Credit Opportunities Fund, execution is not simply the final stage of a deal. It is a central part of underwriting. Structure, documentation and cashflow mechanics determine how risk is allocated, controlled and priced, and are a key reason why transaction timelines are inherently nonlinear.

Execution Progression and Portfolio Activity

January saw continued growth in existing relationships, with two lenders drawing on their facilities during the month.

More significantly, two key transactions progressed through important due-diligence stages. These are transactions that have been in development for extended periods and involve multiple counterparties, negotiated structural protections and detailed legal architecture. In complex asset-backed transactions, this stage of progression is often the most consequential. Once structure and terms are substantially aligned, visibility on capital requirements and deployment timing increases materially, even if final settlement remains subject to execution processes. As these transactions continue to progress toward settlement and become operational within the portfolio, they may create a pathway for the Fund to selectively open to further applications, subject to final execution and deployment visibility. This remains consistent with the Fund’s longstanding approach of aligning capital raising with confirmed deployment rather than prospective opportunity.

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The Fund delivered +0.63% in January, 8.83% over 12 months and 9.31% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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The Fund is currently carrying a higher than targeted level of cash due to forthcoming transaction settlements. Typically, monthly fluctuations in returns are due to cash levels within the Fund.

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Interpreting Credit Headlines in the Right Context

Recent months have seen continued media attention on developments across global credit markets. We are frequently asked how events offshore, or in other segments of lending, relate to the Manning Monthly Income Fund.

The starting point is recognising that “credit” is not a single asset class. It is a broad collection of lending models that differ materially by geography, regulatory framework, borrower type, income mechanics and structural design. Outcomes in one segment do not automatically translate to another.

This is particularly important when interpreting global headlines. Credit markets operate within different legal environments, enforcement regimes and lending conventions. Borrower behaviour, collateral recoveries and restructuring processes can vary significantly across jurisdictions. These differences shape how risk is taken, how losses emerge and how investors are ultimately protected.

Equally, even within a single geography, the term “credit” now captures a wide spectrum of strategies, including non-investment grade corporate lending, construction and development finance, and structured asset-backed facilities, the latter being what the Manning Monthly Income Fund invests in. These are all fundamentally different forms of risk exposure, despite often being discussed interchangeably.

Credit Market Structure and the Fund’s Position Within It

Much of the stress reported in credit markets has been concentrated in segments characterised by concentrated exposures, borrower-level dependency and valuation sensitivity. This is typical of mid-market corporate lending and construction or development finance, where outcomes are heavily influenced by refinancing conditions, asset values and borrower performance.

In non-investment grade corporate lending in particular, the underwriting framework is fundamentally a borrower cashflow assessment. Capital is typically provided to a single corporate borrower, and repayment depends on the operating performance of that business. While security may be taken over assets, those assets do not themselves contractually generate the income used to service the loan. In that sense, repayment remains linked to enterprise value and cash generation at the borrower level.

Asset-backed securities/finance operate differently. A transaction is structured around pools of financial assets that themselves typically generate contractual cash flows, which flow through the structure and service the funding. The performance of the assets, rather than the financial health of a single corporate borrower, drives repayment. Risk is managed at the structure level through eligibility criteria, performance triggers and cashflow controls that operate automatically as portfolio metrics change.

The distinction is structural rather than conceptual, and these are fundamentally different lending structures that behave differently through the cycle.

We are increasingly seeing the term “asset-backed” applied to transactions where the underlying exposure is, in substance, corporate cashflow lending secured by assets. In these cases, repayment ultimately depends on the operating performance of a single business, even where assets are pledged as collateral. The assets may support recovery, but they are not the primary mechanism through which the funding is serviced.

In the Manning Monthly Income Fund, repayment is linked to the performance of an asset pool within a defined financing structure. Even where underlying loans may capitalise interest or amortise over time, the funding itself is supported by contractual payment waterfalls, performance triggers and credit enhancement mechanisms that govern how cash is generated, allocated and protected.

Understanding where repayment is structurally sourced, e.g. from borrower enterprise cashflow or from an asset pool operating within a defined structure, is central to assessing how risk is transmitted and managed.

Maintaining Credit Discipline

Current market conditions continue to reflect strong investor demand for income-focused strategies. In some parts of the market, this has resulted in tighter pricing, reduced covenant protection and pressure to maintain headline yield despite changing funding conditions.

In this environment, maintaining credit standards requires discipline. Protecting structure, diversification, and income quality can mean accepting slower deployment rather than compromising underwriting parameters.

As always, our emphasis remains on understanding how income is generated, how risk is absorbed and how structures behave when conditions change. Developments in other segments of the credit market do not alter these fundamentals, but they do reinforce the importance of distinguishing between very different lending models operating under a common label.

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The Fund delivered +1.20% in December, 13.83% over 12 months and 14.70% annualised since inception, continuing to deliver over 10% net return above the RBA cash rate.

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Over recent months, a common question from investors and advisers has been around timing: when the Fund may reopen and how that relates to the transaction pipeline we are working through. It is worth reiterating how capacity is created in this asset class and why visibility on the pipeline does not translate directly into deployable capital.

MCOF is designed as a high target return credit strategy, and the relationship between capital raised and capital deployed is central to outcomes. With a target of RBA Cash +10% net of fees, holding excess cash for extended periods has a direct and measurable impact on returns. For that reason, capital is raised with reference to confirmed or near-term deployment opportunities, rather than on a continuous basis.

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Execution in this market is inherently nonlinear. Facilities typically involve multiple counterparties, detailed documentation, covenant negotiation, and, in some cases, securitisation mechanics. Timelines can compress or extend as these processes evolve, particularly over the summer period.

This approach is deliberate. It reflects a preference to align capital raising with deployment, rather than reopening the Fund prematurely and carrying cash while transactions progress.

At any given time, the Fund is engaged in multiple transactions at different stages of development. Some facilities are in late stage execution, where documentation is substantially agreed and settlement timing is becoming clearer. Others are in advanced diligence, often involving complex business models and capital structures or multiparty arrangements that require extensive legal, operational and credit work before sizing and terms are finalised. We may also be engaged in earlier stage discussions where there is alignment in principle with a lender, but where capital requirements, structure or timing remain fluid.

Importantly, even once terms are agreed, the path to funding is rarely linear. Facility sizes can change, drawdown schedules can move, and in some cases, transactions do not proceed. This is not a reflection of execution risk so much as the reality of underwriting bespoke, asset-backed credit facilities where multiple counterparties, business structures and risk considerations intersect.

For this reason, we do not manage Fund capacity based solely on the indicative pipeline. Capacity is created when there is sufficient certainty around both the quantum and timing of capital deployment. Opening the Fund prematurely based on prospective transactions risks holding idle cash for extended periods, which is inconsistent with the Fund’s return objective and with our alignment as investors alongside unitholders.

As the Fund has grown, this discipline has become even more important. Facility structures evolve as lenders scale, counterparties refinance, or portfolios season. At times, capital can also be returned to the Fund unexpectedly as lenders adjust their own balance sheets. Maintaining flexibility on both the deployment and capital raising side allows us to respond to these dynamics without compromising portfolio quality or return integrity.

While this approach can result in periods when the Fund remains closed despite an active pipeline, it reflects the strategy’s underlying mechanics. Our focus remains on deploying capital only when structure, documentation and risk parameters are fully aligned, rather than optimising for predictability of inflows. Over time, this discipline has been a key contributor to the Fund’s ability to deliver consistent outcomes across cycles.

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The Manning Monthly Income Fund returned +0.66% in December 2025, 8.96% over 12 months and 9.35% over three years, continuing to deliver net returns of over 5% per annum above the RBA cash rate.

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Deployment Timing Into Year-End

As anticipated, the Fund is carrying higher cash balances as several larger transactions progress through final documentation and execution stages. In structured credit, particularly within securitised and multi-party facilities, deployment timing is driven by legal completion, counterparty readiness and warehouse funding mechanics rather than market conditions. This is especially evident around the December and January period, where execution timelines can extend despite underlying asset performance remaining unchanged.

While we continue to manage applications and deployments as tightly as possible, short term variation in monthly returns is more often a function of cash balances than credit outcomes. Importantly, this reflects discipline around structure and execution rather than a shift in risk appetite or opportunity set. We expect these transactions to fund progressively as process permits, consistent with the nature of the asset class.

Risk Dispersion Beneath The Surface

Market conditions remain supportive for issuance, but the dispersion of risk across the credit market continues to widen. Strong demand and elevated capital inflows have tightened pricing in parts of the ABS market, with covenants and structural protections increasingly bid down as competition intensifies. In this environment, headline yield alone provides an incomplete picture of risk. In our view, the more meaningful distinction is not between public and private markets, but between exposures underpinned by observable borrower cashflows and those reliant on refinancing assumptions and capitalised income. As competition increases, this distinction becomes more important. Rather than competing on price, our focus remains on a narrower segment of the market where we can partner with high quality non-bank lenders, access granular loan-level data, and negotiate structures that prioritise durability over volume. Structures that perform well in benign conditions can behave very differently once liquidity tightens or sentiment shifts, even where underlying assets appear similar on the surface.

Structure As a Source Of Resilience

Periods of market volatility are often characterised by dislocation in pricing and liquidity rather than immediate deterioration in underlying collateral. For this reason, we continue to prioritise facilities where downside is managed structurally rather than through timing or discretion. Eligibility constraints, performance triggers and amortisation mechanics are designed to operate early and automatically, reducing reliance on market conditions or our intervention.

As the Fund enters its eleventh year, this emphasis on contracted cashflows, conservative structuring and repeatable processes has remained central to targeting capital stability and a consistent level of income across different market environments. While the backdrop continues to evolve, our approach has not. The focus remains on deploying selectively where structure and risk are appropriately aligned.

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The Fund delivered +0.65% in November, 9.06% over 12 months and 9.37% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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As we noted in last month’s commentary, the Fund is carrying elevated cash balances ahead of a number of significant transactions scheduled to complete over the summer months. In structured credit, capital and deployment cannot always be perfectly aligned, particularly when transactions involve complex documentation and securitisation processes. These timing dynamics can cause monthly returns to move within a normal range, reflecting cash levels rather than credit outcomes. Portfolio performance remains consistent with expectations.

As we approach the end of 2025, we reflect on a year defined by strong capital flows, shifting economic conditions and increasing regulatory attention across the Australian credit market. Through these developments, our focus has remained unchanged: the Fund targets capital preservation and a stable, high level of income through disciplined structuring, deep due diligence and selective deployment.

2025 marked another step in the maturation of unlisted credit in Australia. Record levels of capital entered the market, supporting robust issuance across both public ABS and private transactions. This influx contributed to spread compression in several sectors and sharpened the need for genuine credit discipline. In an environment where capital was abundant, structure and selectivity - rather than availability of transactions - were the true differentiators.

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Key Themes of 2025…

Record Capital Inflows and a More Competitive Market

Capital continued to flow into Australian credit at unprecedented levels, driven by the appeal of income-oriented strategies and ongoing volatility across equities. As a result, pricing tightened in public RMBS and ABS sectors, and competition increased across private markets.

Against this backdrop, our approach remained measured. We deployed only where risk, structure and counterparty quality aligned with our return target, supported by the breadth of a consistently deep pipeline.

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Structure and Disclosure Under the Spotlight

ASIC’s heightened scrutiny, including the initial publication of Report 814 and subsequently 820, brought renewed attention to parts of the market where disclosures, valuation practices or income recognition lacked consistency. The distinction between genuine cashflow generating asset-backed facilities and structures reliant on capitalised interest became clearer, as did the focus on independent valuations, remuneration structures and the inconsistent use of terminology across the market.

We view this as a constructive development. Regulatory clarity helps investors better assess the varied risk profiles within the “private credit” category and underscores the importance of practices we view as foundational, including transparency and clear alignment of interests.

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Slower Momentum, Stickier Inflation

Inflation in Australia proved more persistent than in many global markets, while forward indicators of growth softened. Although not recessionary, the combination of stickier inflation and weaker momentum reintroduced discussion around stagflation.

For credit investors, the relevance is practical. Portfolios must be positioned to perform when rates remain elevated even as growth slows. Throughout 2025, our focus remained on exposures where income is generated from borrower cashflow, supported by diversified, amortising loan pools and layers of structural protection. These frameworks are designed to support portfolio resilience across a wide range of macro conditions, rather than rely on a single economic scenario.

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Yield Is the Outcome, Not the Asset

2025 saw an increase in strategies marketed primarily on absolute yield targets rather than on structure, collateral quality or underlying cashflow. In a higher rate environment, some funds maintained distribution levels by extending tenor, accepting thinner protection or relying on capitalised interest and non-cash income.

This created a widening gap between headline yields and underlying risk. Strategies that look comparable at a distribution level can carry materially different exposures once funding mechanics, borrower behaviour and structural protections are analysed. The absence of cashflow based income can indicate embedded leverage or dependence on principal rather than true earnings.

This divergence reinforced the importance of understanding how returns are generated. In contrast, the Fund remained focused on cashflow producing, asset-backed facilities with observable performance data and robust protections. Our priority continues to be sustainability of income, depth of structure and alignment with counterparties, rather than optimising to a published target.

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A Decade of Consistency Through Cycles

As the Fund approaches its tenth anniversary, the past year has underscored the value of a disciplined, through the cycle approach. We have navigated periods of elevated liquidity, spread compression, policy uncertainty and economic transition without changing our mandate. Performance has typically reflected repeatable credit processes, transparent reporting and selective deployment.

Investor demand reached record levels in 2025. We continue to manage capacity carefully so that new inflows can be deployed into opportunities that meet the same standards that have underpinned the Fund since inception.

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Looking Ahead to 2026…

We enter 2026 with a constructive but measured outlook. The Australian economy is adjusting to a higher-for-longer rate environment, and core credit performance remains fundamentally stable. Although competitive pressure is likely to persist in parts of the market, we continue to see opportunity in well structured, asset-backed facilities where consistent cashflow and strong protections contribute to stability across conditions.