Manning invests in a range of asset-backed portfolios which we quantitatively and qualitatively assess to determine their resilience and overall credit quality.
Central to the Fund’s strategy is rigorous transaction analysis and robust structural protection mechanisms across all assets. Each investment is evaluated with stress testing and credit protections embedded in the transaction documentation, ensuring comprehensive risk management safeguards our investments.
As part of our analysis, the following are some of the factors considered:
- Borrower Default Rates and Asset Value: Increases in borrower default rate assumptions and a reduction in asset / collateral value that reflect prolonged recessionary conditions and rating agency criteria. Further haircuts will be assumed on assets that are likely to experience more volatile valuations during periods of stress. Likewise, individual borrower and loan characteristics will be considered in the determination of stressed default rates.
- Asset Yield: A reduction in asset yield caused by market fluctuations and rising arrears, and investors demanding increased margins resulting from a trigger event or deteriorating economic conditions.
- Delays in Liquidation: We assume significant delays in liquidating assets that are securing underlying loans. We incorporate the accrued interest on defaulted loans during this liquidation period in our analysis.
The Manning Team models varying degrees of economic stress to estimate expected losses and determine required structural protections, such as the arrears tolerance on underlying loans and subordination prerequisites. Unlike direct lender funds (funds where the manager is also the lender/originator of the loans), where investor capital losses typically occur immediately if a borrower defaults and the asset value falls below the loan amount, our structures offer additional protection. In an asset-backed structure, investor capital is at risk only when the first loss or subordinated capital is eroded. We have implemented structural protections that trigger amortisation before losses or arrears reach a level that threatens investor capital. These protections prioritise investor interests and mitigate downside risks.
These are a sample of the measures we implement to protect investor capital and have been instrumental in maintaining our 8+ year track record of achieving the Fund’s RBA cash rate 5% net of fees objective through the economic cycle.
