About Private Debt
Private debt refers to the provision of non-publicly traded debt finance to consumers and businesses. Examples of debt finance include consumer loans (unsecured including credit cards or personal loans and secured such as car leases), business loans (secured including invoice financing, or supply chain finance and unsecured working capital loans) and residential or commercial property mortgages.
Private debt can offer a real return profile, a steady income stream, low volatility, a level of capital stability; and portfolio diversification. This may be attractive to investors.
It is important to note that like all investments, investing in the Manning Private Debt Fund (Fund) involves a level of risk. Investors should, before deciding to invest, read the Fund Information Memorandum and consider seeking independent advice.
The loans market has historically been the domain of the banks and ADIs, but with recent technology developments, changing consumer attitudes and regulations in recent years, there has been significant growth of non-bank activity (both in the lender and product spheres) and an increasing use of ‘Private Debt’ as a term that reflects the increasing breadth of opportunities.
No – private debt is a very significant, established and growing market overseas in a number of jurisdictions. The US and UK are the biggest offshore markets.
A number of factors drive investment returns in private debt. These include credit quality and tenor of the underlying exposures, availability of alternate funding sources and interest rate outlook. Manning Asset Management considers these prior to purchasing its exposures and on an ongoing basis to inform future purchasing and reinvestment decisions
In addition, costs, fees and taxes payable will affect the net return received by investors.
The private debt market is an attractive, established and expanding market both in Australia and overseas. Private debt can offer exposure to the following attractive investment attributes: a real return profile, a steady income stream, low volatility, an element of capital stability and asset diversification.
The Fund targets a return of RBA cash rate plus 5% per annum over rolling 5 years (net of fees, excluding tax). This may compare favourably with other asset classes.
Manning Asset Management believes the Fund can be a strong source of return while offering defensive characteristics.
Yes – however the private debt market is complex and nuanced with over 260 lenders in Australia alone. Therefore, it can be time consuming to research, analyse, invest in and continually monitor exposures. In addition, gaining access to some private debt lenders and exposures and building a diversified and scalable pool may be more difficult on an individual basis.
These include, but are not limited to:
Credit analysis – to understand the risk profile of underlying assets.
Debt structuring – to understand the risk profile of the various investment structures offered.
Legal – vital in the analysis of investment structures; and managing contractual risk when appointing a new lender.
Origination – to understand the intricacies of how, by and to whom loans are originated and the resultant implications as to asset quality.
Investment management – to enable the appropriate construction and management of a pool of assets to achieve the desired investment objectives.
Operations– to enable the understanding of business operational matters (including with respect to lenders and outsourced service providers).
Risk management – enabling the identification and management of various risks, including investment, operational, compliance, governance, credit, liquidity, market and strategic – at lender, portfolio, or macro levels..
Economic – to understand how economic conditions may be changing and what impact this could potentially have on the various exposures within the portfolio and on the portfolio itself and inform its go-forward positioning.
A specialist private debt funder is focused on understanding and identifying attractive risk adjusted return opportunities in the complex and growing private debt market.
A specialist private debt manager will typically construct a diverse portfolio aimed at meeting a particular targeted return benchmark and investment parameters having undertaken the necessary research, analysis and due diligence on selected lenders and underlying assets.
The manager will typically manage the portfolio on an ongoing basis and ensure all operational matters are attended to including investor reporting, cash management and administration. The manager will typically monitor performance and actively manage the portfolio over time in response to changes in inter alia the macro economic environment, return expectations, the private debt asset class, specific asset classes within private debt, lender originations and operations, and borrower behaviour.
A specialist private debt manager will also typically be known in the market and thus may obtain privileged access to lenders and assets.
Therefore, this can provide a cost-effective alternative to seek exposure to a diversified pool of private debt assets without the significant upfront and ongoing work involved in ‘going it alone’.
The spectrum of Private Debt lenders is very diverse, ranging from large ADIs to small alternative finance platforms. Their common feature is that they all advance debt finance to borrowers for personal or business requirements, however the terms and conditions of the financing and the underlying borrower characteristics vary substantially. Manning Asset Management Pty Ltd assesses these factors as part of its comprehensive lender selection and due diligence process.
Manning Asset Management’s analysis considers the level of risk retention by a lender (and consequential alignment of lender interests with those of the Fund) as being very significant in the decision to invest. Accordingly, Manning Asset Management would typically expect to see some form of skin in the game. The exact levels and format of this will be dependent on the underlying collateral type, originator and structure.
What are the characteristics of the underlying borrowers that private debt investors have exposure to?
The borrowers are a diverse range of business and consumer borrowers. Manning Asset Management’s comprehensive due diligence and lender selection process analyses the borrower origination and underwriting standards of each of the lenders prior to their selection to ensure that these standards are robust.
If an underlying loan goes into default, usually the underlying lender (or alternately the servicer or backup servicer in certain circumstances) is primarily responsible for servicing the loan to recover outstanding. Recoveries are generally assets of the Fund. Depending on the nature of the exposure and the arrangements with the underlying lender there may be forms of structural protection which may be available to buffer the Fund against loss e.g. overcollateralization, first loss pieces and loss reserves, however there is no guarantee that these will be sufficient to protect against loss. Valuations of that particular asset may be adjusted if deemed necessary in accordance with Manning Asset Management’s valuation methodology.
Manning Asset Management
Manning Asset Management Pty Ltd (ACN 608 352 576, AFSL 509561) is an Australian based boutique fund manager that specialises in investments in private debt.
Our strategy is simple: we aim to be the leading fund manager in the emerging private debt asset class.
Manning Asset Management’s values are integrity, collaboration, diversity, leadership and empowerment.
Manning Asset Management was founded in 2015. The Manning Private Debt Fund was launched in April 2016.
Manning Asset Management has a team of investment professionals with over 100 years of collective experience across credit, debt markets, legal, risk and investment management operating within a well-defined governance structure.
Biographies can be located here on the Manning Asset Management website or within the Fund’s Information Memorandum.
Manning Asset Management follows its investment process in the selection and approval of opportunities. Firstly, Manning Asset Management considers the macro-economic environment and relevant portfolio positioning considerations. These are used to inform portfolio construction and appropriate weighting of potential suitable lenders and desirable asset characteristics. Manning Asset Management’s detailed due diligence process is then undertaken to analyse each potential lender’s operations and ensure a clear understanding of its risk profile of each lender and the underlying loans. Manning Asset Management has a proprietary 10 stage 100+ point checklist to inform its decision-making and meets with all prospective lenders’ management teams throughout this process. The final stage is the evaluation and management of the loan purchasing program.
Any decision to formally approve (or not) the lender and the debt which can be purchased is taken by Manning Asset Management’s Investment Committee.
Once purchased, the performance of the exposures within the Fund is monitored on an ongoing basis and reported to the Investment Committee. Manning Asset Management maintains ongoing dialogue with the lenders as to performance of the Fund’s exposures, as well as addressing other relevant matters, including any changes in underwriting approach, target customer base, business model and strategy. Insights from these discussions are fed back to inform the investment approach and future purchasing decisions.
Manning Asset Management’s proprietary 10 stage 100+ point detailed checklist requires significant detail and documentation to be provided to enable its completion. This is supplemented by interviews with members of the lender’s management teams (including at least one meeting at the lender’s premises). Transparency (both upfront and on an ongoing basis) is an important criteria of Manning Asset Management’s investment process; if Manning Asset Management feels it has received insufficient or incomplete information it will simply not invest.
Yes. ESG considerations are incorporated into Manning Asset Management’s investment process. Manning Asset Management will analyse ESG risks, building the consideration of these into the overall assessment of various lenders. We believe an integrated approach to ESG analysis enables a more balanced consideration of each lender’s investment proposition as a whole.
Manning Asset Management monitors its portfolio on an ongoing basis. Cash is monitored daily and performance of the underlying exposures is monitored on an ongoing basis and formally reviewed at a lender specific level by the Investment Committee each month. Similarly, the overall Fund investment performance is monitored on an ongoing basis with formal monthly updates reported to the Investment Committee.
Manning Private Debt Fund
The Fund is an unlisted Australian domiciled unit trust. It invests in a diversified portfolio of private debt assets originated through domestic lenders. The Fund is actively managed to enhance risk/return characteristics over time.
RBA cash rate plus 5% per annum over rolling 5 years (net of fees, excluding tax) and limiting the risk of a negative return over this time period.
The Fund provides cost effective exposure to a diversified pool of Australian private debt originated by selected lenders.
Our firmly held belief is that there is significant opportunity in the expanding yet complex Australian private debt market for investors to benefit from, but doing this properly takes time, resources and experience.
We aim to assist investors in navigating through its complexity and gain access to a diversified asset pool which we believe offers attractive risk-adjusted returns by providing the opportunity to invest in the Fund
The Fund targets a net return of RBA cash rate plus 5% per annum over rolling 5 years (net of fees, excluding tax) and limiting the risk of a negative return over this time period.
Investors should read the Information Memorandum and seek professional advice prior to taking a decision to invest.
Investment in the Fund is restricted to investors who qualify as ‘wholesale clients’ under Chapter 7 of the Corporations Act 2001.
A wholesale client is:
- A client who is applying for units in the Fund at a price, or for the value of at least $500,000 (s.761G(7)(a)).
- A client who has a certificate (issued within the last 2 years) from a qualified accountant stating that they have net assets of at least $2.5 million, and are applying for Units in the Fund for a purpose other than for use in connection with a business (s.761G(7)(c)(i) and regs 7.1.28(1), 7.6.02AC).
- A client who has a certificate (issued within the last 2 years) from a qualified accountant stating that they have a gross income for each of the last two financial years of at least $250,000 per year, and are applying for units in the Fund for a purpose other than for use in the connection with a business (s.761G(7)(c)(ii) and regs 7.1.28(2), 7.6.02AB and 7.6.02AC).
- A client who is a professional investor, which includes a client which is an AFSL Licensee, a body regulated by APRA, an entity which has or controls gross assets of at least $10 million (including assets held under trust), a listed entity, and a body corporate that carries on a business of investment in financial products (s.9, s.761G(7)(d) and reg 7.6.02AE).
- A client who is a sophisticated investor, which means a client in respect of whom Manning Asset Management is satisfied on reasonable grounds has previous experience in using financial services and investing in financial products that allows the client to assess the merits, value, and associated risks associated with the Fund, along with their own information needs and the adequacy of the information provided by Manning Asset Management in respect of the Fund. In this situation, Manning Asset Management must provide a written statement to the client explaining why it is satisfied with the client’s experience; and the client must sign a written acknowledgement that Manning Asset Management will not be treating the client as a retail client and giving them the retail disclosure documents (s.761GA).
Note: In reach of the above, the reference to “client” is a reference to an individual, a company or a trust.
The Fund generates returns through its exposure to a diversified portfolio of private debt assets originated through domestic lenders.
What assets are included in the Fund? How does MAM select these assets? Can these assets change over time?
The Fund can invest in any private debt instrument including (without limitation) interests in loans originated by bank and non-bank lenders; tranches of residential mortgage backed securities and asset backed securities; senior, subordinated and hybrid debt issued by corporates, banks and governments; cash.
The Fund is managed in line with the Investment Policy Statement (IPS) which mandates constraints in respect of various factors including but not limited to lender, asset class and single loan concentrations, WAL, duration, and liquidity.
The Fund through implementing the investment strategy as outlined in the IPS, may acquire other related assets which Manning Asset Management deems appropriate to enhance the investment strategy. For example, a derivative to manage interest rate risk. However, it is not currently envisaged that assets other than private debt instruments will form a material portion of the Fund’s composition.
Manning Asset Management follows its investment process and philosophy in determining which assets to select. This includes detailed macroeconomic analysis, portfolio construction, lender due diligence following our 10 stage 100+ point questionnaire and finally loan analysis and purchasing. Comprehensive continuous performance monitoring and analysis of the purchased assets takes place together with ongoing lender dialogue
The assets to which the Fund has exposure to may change over time. The portfolio is adaptive to prevailing market conditions and is actively managed to enhance risk/return characteristics through time. Manning Asset Management operates an active monitoring and surveillance programme which informs future purchasing and reinvestment decisions.
Like all investments, the Fund involves a level of risk. There are a number of risks of investing in the Fund. These include, but are not limited to:
Investment risk– risk that the investment (or the investment manager) may not perform as expected in meeting its targeted investment outcomes.
Regulatory risk – risk that changes in the regulatory environment impacts the Fund’s activities, investments or performance.
Geopolitical risk – risk that geopolitical factors may directly or indirectly impact the macroeconomic environment in which the Fund operates.
Legal and tax risks – risks that changes to legislation or tax legislation impact the Fund’s investments or performance.
Borrower default/credit – risk that borrowers of underlying debt fail to repay.
Liquidity – risk that units in the Fund cannot be readily redeemed on demand or distributions paid in a timely manner.
Interest rate – risk that fluctuations in interest rates impact the valuation of Fund assets.
Operational – risk that operational matters adversely impact the Fund.
Counterparty – risk that external parties (including service providers engaged by third party lenders) fail to perform their financial or non financial obligations.
Investors should, before deciding to invest, read the Information Memorandum and seek independent advice.
Manning Asset Management does not guarantee the performance or success of the Fund and you may lose some or all of the capital invested. Past performance is not a reliable indicator of future performance.
3 – 5 years. Note that returns may vary within that timeframe.
No. Investors can redeem monthly providing the Fund has sufficient liquidity.
Liquidity is monitored on a continuous basis. The level of Fund liquidity will vary throughout the month depending principally on underlying repayments/prepayments flowing through from the underlying assets and reinvestment activity. Manning Asset Management aims to maintain sufficient liquidity to fund redemptions in a timely manner where possible, although there may be circumstances (eg where redemptions are materially higher than anticipated, during material market dislocation, force majeure) where this may not be possible and redemptions may be suspended or delayed.
The Fund may hedge some or all of any foreign exchange or interest rate exposure with the assistance of a specialist service provider
The Fund does not anticipate using leverage and derivatives for speculative purposes. The Fund will not seek to use gearing to boost returns.
Manning Asset Management charges a base fee of 0.5% (for balances of $250,000+) or 0.75% (for balances under $250,000) of the Net Asset Value of the Fund holdings per annum. In addition, a performance fee of 10% of the Fund’s outperformance (post base fee) of the RBA cash rate calculated on a monthly basis, plus taxes is charged. This is subject to a high watermark.
In addition, there is a buy/sell spread of 0.25%/0.25% charged at time of investment (except for distribution reinvestments). This is paid into and retained by the Fund.
Manning Asset Management may recover expenses directly incurred in managing and administering the Fund (expense recovery). Please see Section 10, Fees and Costs of the Information Memorandum for a more detailed explanation.
Buy/sell spreads are charged on investments (excluding reinvestments of distributions). This is to compensate the Fund for its increased holdings of cash during the period taken to invest or redeem. Note that the buy/sell spread is retained in the Fund and not paid out as a fee to the Investment Manager.
Investors receive an investor statement monthly and quarterly distribution statement together with a transaction statement after each transaction and an annual tax statement.
What is the Fund’s distribution policy? When does the Fund make distributions? In what form are these distributions made?
The Fund distributes all income received, net of its base fee and any performance fee and costs directly attributable to the Fund.
The Fund makes quarterly income distributions. These can either be paid to your nominated bank account or reinvested in units of the Fund.
A commingled fund is a fund consisting of assets that are pooled together, enabling potential benefits from diversification and economies of scale compared to separate accounts. The risk profile of a commingled fund (such as the Manning Private Debt Fund) will differ from a separately managed account (which holds assets specifically selected by or on behalf of an investor). The liquidity risk profile may differ given the ability of other investors in the Fund to request redemptions. Redemptions can be funded through a number of sources – through cash held in the fund, underlying loan repayments and if required through asset sales. Although the Fund will aim to manage liquidity to enable redemption requests to be met in a timely manner, in certain cases redemptions may be suspended if not in all remaining investors’ best interests. If there are significant redemptions resulting in the Fund reducing in size, investors who remain in the Fund may have exposure to a more concentrated pool of remaining assets (“tail risk”).
Credit and interest rate risk will also be borne on the Fund’s underlying exposures.
The Fund’s assets are valued at least monthly in accordance with the Fund’s valuation methodology to arrive at a fair valuation for new and existing unitholders.
The Fund’s valuation which drives its unit pricing takes into account the following variables: value of principal outstanding on all loans, cash flows received from the repayment of loans and not distributed out to unitholders, accrued interest, all fees, taxes and charges paid or received and a deduction for any debt which default on set repayments and remain outstanding. Fixed rate debt with long tenor (over 1 year) is typically valued at prevailing market interest rates i.e. mark to market.
The Fund invests in assets originated by selected lenders. The structure of these assets varies on a lender by lender basis – the Fund’s exposures may be in a number of forms including individual direct loans, loan pools, fractionalised elements of loans, term or warehouse notes, cash, bonds or units in managed investment schemes. The proportions of these will vary over time.