News and Insights

How we’re answering one of the most pressing questions from investors

One adviser said that it’s hard to find income these days without taking big risks. Now, there’s a fund that solves that problem.

Between October 2019 and July 2022, the RBA’s cash rate never climbed above 1%. Since July 2022, Australia’s central bank has hiked its benchmark interest rate 12 times in 13 months. It has also often done it at multiples of the regular 25 basis point increments, making the search for stable and growing income that much more challenging.

Now, more than ever, we believe investors are more discerning and selective about where they invest their capital. That’s where we believe we have a ready and available solution.

Launched seven years ago, the Manning Monthly Income Fund is designed to grow income without taking on outsized risk. The fund has never had a negative return month from credit losses in the seven years it has been in operation.

How is this possible given all the headwinds that have plagued the financial markets over that time?

The secret has been sticking to a five-point investment philosophy that prioritises capital preservation and asset diversification above all.

In this Fund in Focus, I’ll share some details about the Manning Monthly Income Fund and introduce you to the experienced team who manages it.

Timestamps

• 0:00 – Introduction
• 1:45 – Introducing the Manning Monthly Income Fund
• 3:21 – The Manning Monthly Income Fund’s performance
• 4:02 – Investment Philosophy
• 5:26 – The Manning AM Team
• 6:55 – Asset Allocation In-Depth
• 7:26 – Investment Process

Disclaimer:

This video may not be copied without the prior consent of the issuer Manning Asset Management Pty Ltd AFSL 509 561, ACN 608 352 576. This podcast is intended for use only by persons who are ‘wholesale clients’ within the meaning of the Corporations Act. It is intended to provide general information only and has been prepared without taking into account any particular person’s or entity’s objectives or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their own situation. While due care has been taken in the preparation of this podcast, no warranty is given as to the accuracy of the information. Except where statutory liability cannot be excluded, no liability will be accepted by Manning Asset Management for any error or omission or for any loss caused to any person or entity acting on the information contained in this podcast. We do not guarantee the performance or success of an investment and you may lose some or all of the capital invested. Past performance is not a reliable indicator of future performance.

For years, conventional fixed income struggled to pay rates. But Manning Asset Management continues to beat the crowd – Written by Hans Lee, Livewire Markets.

The story of fixed-income underperformance has been well-telegraphed. But look beneath the surface of the government bond market and you’ll find that alternative sources of fixed income have fared much better. Some of these outperforming assets include consumer loans, business loans, and in particular, the mortgage-backed asset market.

Mortgage-backed assets are, and we hasten to point this out, are not the same things as the kind of mortgage-backed securities that brought down Lehman Brothers and the like in 2008.

The Manning Monthly Income Fund could have invested in traditional, publicly traded RMBSs but they chose not to because they knew there was a better way to access the market. This presented a quandary for Josh Manning, founder of Manning Asset Management and his team.

How can you capture reliable income in the wider property space without (literally) betting the house?

To get around this problem, the Fund has taken a big interest in carefully chosen, high-quality mortgage-backed assets. Today, mortgage-backed assets actually make up more than 50% of the Manning Monthly Income Fund and are a big source for its long-term outperformance.

In this wire, I’ll share some insights into how the team invests in this traditionally opaque and challenging part of the market.

Outperforming the benchmark (and the plan to stay ahead)

According to the Livewire funds database, the Manning Monthly Income Fund has been the top performer over the last three years in the fixed income category. Since its inception, it’s returned 6.53% per annum to shareholders. So how did it do it?

“It’s really about finding the right strategy which can perform through different market conditions,” Manning said. “We’re not really looking to outperform.”

But the statistics don’t lie – and the fund really has outperformed its competition. Manning attributes the fund’s stability to three things:

1. Finding a strategy that is designed to stand the test of time.
2. The right people in the right seats at the decision-making table – including finding people with vast amounts of market experience.
3. Get the incentives right – and this extends from business structure to the general investment philosophy

“For seven years, through all sorts of geopolitical issues, through all sorts of RBA cash rate profiles, through all sorts of macro backdrops, we have just consistently hit our RBA + 5 objective. It’s not about trying to go over, it’s just about consistency,” he added.

The fund has a target return of the RBA cash rate plus 5%. With the cash rate now over 4%, how does Manning plan to stay ahead?

“I think you have to be really careful about where you’re playing,” he said. “We really like that shorter-dated, shorter-weighted average lifetime fixed income investments which don’t have that long duration aspect.”

The shorter-dated end of the market, Manning explains, doesn’t expose investors to as much credit spread risk. Note that “shorter-dated” in this context means anything that matures in under 24 months (and in a lot of cases, under 12 months).

“We also like stuff where we think the asset class, its structures, and its counterparties can perform through the economic cycle. If you can get that right balance, the asset class provides strong returns, asset diversification, strong and consistent income, low volatility, and capital stability,” he emphasised. “But you have to be very deliberate.”

The assets in the fund

The old adage argues that “diversification is the only free lunch in investing”. But Manning and his team take that to a whole new level. The Manning Monthly Income Fund has over 10,000 individual asset exposures. But who is backing these assets?

“We’re looking across the market – literally hundreds of lenders – and trying to find lenders that we believe are the best in their field and can offer very attractive pools of loans that we can purchase,” he said.

To explain this point further, he referenced a recent deal the team were involved in.

“We negotiated for 135 basis points more yield. We’re also saying we want more capital protections and not only that, we want to enhance liquidity. We want better terms than those being offered to the market,” he noted. “Because this is all we do, we can be very active and we do pull back.”

All of which, Manning says, is backed by what they call “proven counterparties”. But what makes a proven counterparty?

“Essentially, we don’t rely on credit ratings and third-party research. We have deep relationships and a long track record of working in this sector,” he said.

He added that the team may receive five to six deals on average per week, but the investment management team may only execute one or two of them per month.

“We have a proprietary process where there is a formal, invasive process to go under the hood of lenders. It includes things like on-site visits and meeting with key and junior management. I call it a contact sport,” he quipped. “There is a very clear alignment of interests.”

The property aspect

As has already been noted, more than half of the fund’s composition is dedicated to residential and commercial MBSs. Those positions have only continued to rise, especially in the residential space where allocations to that part of the market are near all-time highs.

So what does Manning think about the future trajectory of the property market? He says that property needs to be evaluated in a much more granular way. Each segment, area, and asset need to be assessed individually to understand the fundamental and risk profile of each potential investment.

“The Australian property market is quite an academic principle,” he said. “You don’t have to be a property market forecaster. We’re not trying to say property will be up or down a certain amount. Our focus is on the risk profile,” he added.

“The question is not whether property will be up or down by a certain percent in 12 months’ time. The question is, how safe is our capital and do we strongly believe we will receive 100% of our principal back at loan maturity. To answer that, you need a fundamental understanding of each segment of the market to gauge risks and pockets of value,” he added.

As a result of his views, Manning points out that the fund does not play in conventional methods – or indeed, the kinds of securities that were so much the subject of the 2008 Financial Crisis.

“We’re not in traditional RMBS or CMBS-type securities. Those are public deals that are highly structured and to get a good yield, you have to be heavily subordinated. To do that, you take on more credit risk and more mark-to-market risk,” he said.

“What we prefer to do is to go directly to these issuers and structure deals directly with them. We’re purchasing actual loans themselves. We’re not buying off an exchange,” he added.

The Fund delivered +0.79% in May, 8.70% over 12 months and 6.57% annualised since inception, continuing to deliver over 5% net return above the RBA cash rate.

As the RBA continues to move the cash rate higher, we increasingly believe that the performance of the different Australian credit sectors will diverge following a long period characterised as having low arrears and relatively consistent performance. For example, the performance of prime vs near prime mortgage borrowers will differ alongside unsecured business lending vs secured. The driver shall be the uneven nature in which the economic slowdown and higher mortgage repayments shall impact each.

Given this outlook, we anticipate more active management of the portfolio into sectors and structures best able to perform through this period. An opposing set and forget strategy based on a historical perspective shall see investors inherit additional risk, which we see as unwise.

Many Funds in the market limit access only to loans that they have originated. In this scenario, investors capital is confined to one lender and, most notably one sector. Investors, therefore, need to assess if that lender is the best in the market and, crucially, given the outlook, if that sector is the right place to be. Manning rather looks across the 200+ Australian lenders and uses its domain expertise and dedicated resources to find the most attractive lenders, invest with the right ones in the right sectors given the outlook and most importantly, use our scale to negotiate preferential terms, which typically have enhanced risk mitigants to further protect investor capital.

This multi-sector, multi-issuer approach, where we have considerable bargaining power given our scale, alongside our specialist resources with their domain expertise, is a powerful way to navigate what we see as a more challenging economic period ahead.

Evergreen Ratings

The Manning Monthly Income Fund was recently reviewed by Evergreen’s Rating, a specialist Australian Ratings House and was awarded their top rating, Highly Commended. An award they have never given to Fixed-Income/Credit Fund. Evergreen notes, “The Fund offers a way for wholesale investors to invest in a portfolio of mortgages, business and consumer debt, structured in such a way that credit risk is significantly reduced but still targets returns well in excess of the RBA cash rate” and “Evergreen Ratings believe the Fund is well-managed and will continue to generate returns and manage risk to the levels expected of the Fund” and finally, “Evergreen Ratings believe the Fund has a very high probability of meeting its objectives”. Thank you to our clients for making this possible and please reach out if you wish to receive this updated report.

Australian Fixed-Income Markets Unveiled – Investor Implications Amid the RBA’s Economic Transition

As the RBA moves from pumping to decelerating Australia’s economy, what are the implications for investors and how is Manning monitoring and thinking about these developments? In light of these changing domestic dynamics, you are invited to this webinar with Portfolio Manager & Founder, Josh Manning and Chief Investment Officer, Adrian Bentley, as we discuss the most important themes emerging this year. The webinar will cover:

– What are we seeing in the fixed-income markets: the considerations and outlook for income investors

– Public Vs Private Markets – what does an investor need to consider right now

– The eternal question – what might happen in the Aussie housing market and how is Manning positioned?

The webinar will be presented by:

Josh Manning – Portfolio Manager & Founder

Adrian Bentley – Chief Investment Officer

Juliet Shirbin – Head of Investor Relations

Disclaimer:

This video may not be copied without the prior consent of the issuer Manning Asset Management Pty Ltd AFSL 509 561, ACN 608 352 576. This podcast is intended for use only by persons who are ‘wholesale clients’ within the meaning of the Corporations Act. It is intended to provide general information only and has been prepared without taking into account any particular person’s or entity’s objectives or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their own situation. While due care has been taken in the preparation of this podcast, no warranty is given as to the accuracy of the information. Except where statutory liability cannot be excluded, no liability will be accepted by Manning Asset Management for any error or omission or for any loss caused to any person or entity acting on the information contained in this podcast. We do not guarantee the performance or success of an investment and you may lose some or all of the capital invested. Past performance is not a reliable indicator of future performance.

Drawn by appealing yields and the perpetual necessity for portfolio diversification and resilience, investors are gravitating towards this asset class. However, understanding the dichotomy of public versus private fixed-income assets is pivotal. This article unravels the benefits of each, outlining their significance in contemporary portfolios.

Navigating The Public Bond Market

Australia is home to many higher-quality fixed-income managers and, as the fourth largest savings pool globally, there are numerous global funds with an Australian presence. Public fixed-income assets include Government Bonds (Commonwealth, State or Quasi Government), Corporate Bonds (issued by better known companies) and Asset-Backed Securities (typically issued by bank and non-bank financial institutions). Being public in nature provides investors with an element of liquidity in that there typically is a market to buy and sell such assets however the amount of liquidity is primarily determined by how large that bond issue is, how well known the issuer is and the complexity of the security. For example, an Australian Commonwealth Government Bond has substantial liquidity. In this regard, investors can, to varying degrees, buy and sell those bonds directly or via a broker. They can also access such assets via a Fund that can provide liquidity by allowing them to apply and redeem in accordance with the Fund terms. Public bonds benefit from relatively standard upfront disclosure when they are first issued so investors can more readily compare one issuance/bond to another.

In most cases, the issuer or the individual bond will have a credit rating so investors can have greater confidence that bonds attracting this credit rating fit their risk appetite (e.g. an investor may have risk appetite only for bonds rated AA or higher). Large and more commonly used Credit Rating Agencies (e.g. S&P, Moody’s) are global, so one can also more readily compare an Australian bond to a UK-issued bond. The public bond market in Australia is large at over $2 trillion and plays an essential role in institutional and individual portfolios.

Private Assets: Unlocking Liquidity & Assessing Risk

Private fixed income assets are primarily Corporate and Asset-Backed Securities and can be issued by the same entities that issue public bonds. Unlike public equivalents, private fixed income assets can vary significantly in nature and do not commonly have a credit rating attached to them. They often arise through direct engagement with the issuer where bespoke terms are negotiated between one or just a few parties rather than being more widely held by many investors in the market. Those investors value the direct relationship with the issuer and, importantly, the enhanced terms that can be achieved. For example, private equivalents can include security over assets in addition to a corporate guarantee where any non-payment could enable the investor to pursue the company directly. Any enforcement actions required could also occur via direct engagement with the issuer, whereas public equivalents often require many parties to engage, determine the best approach, vote and then act via a representative thus, it can be more drawn out, costly and less predictable.

Private fixed income assets however are not, by themselves, particularly liquid. They typically have a maturity where capital is scheduled to be returned however, before then, there can be limited ways to sell them. While this is true if you hold just one bond, buying a second bond that matures between now and the maturity of the first bond, doubles the liquidity frequency. Buying a further bond at a different maturity adds further liquidity, and so on. If you have a $100m+ portfolio, strategically planning scheduled maturities can add significant liquidity. If you don’t have that quantum, a fund specialising in such investments can provide added liquidity.

Another consideration with private fixed-income assets is that a rating agency may not rate them. If you buy one of these assets directly, you must assess the asset’s risk profile and suitability for one’s portfolio. Please read my prior article here for thoughts on this. Assessing suitability involves considerable domain expertise in that sector gathered over market cycles, access and time to evaluate the opportunity through direct engagement with the issuer and both qualitative and quantitative approaches to understand the risks and assess the appropriateness of the mitigants in place. While there are no official numbers, our estimates of private fixed-income assets exceeds $200 billion in Australia alone.

Accessing Opportunities: The Dual Role in Investor Portfolios

Investing in private fixed-income assets is more complex, time-consuming and requires additional scale to achieve a degree of liquidity. In our experience, investors can typically receive 2-3% more per annum (than equivalent public assets) to compensate them for that impost. For example, we recently purchased an asset for the Fund, which, notably, met our threshold question: will this asset perform through the economic cycle and delivers a running yield of 11.50% per annum.

We see both sectors playing an essential role in investor portfolios, although we are drawn to the higher risk-adjusted returns that private fixed-income markets offer where we have the scale, domain expertise and time to extract them for our clients.

The Fund delivered +0.79% in April, 8.41% over 12 months and 6.53% annualised since inception.

Across our three Funds, we participate in numerous transactions where the underlying borrowers pledge property as security either directly (via a mortgage) or indirectly (via broader loan terms). We therefore, track and contemplate how the Australian property market is performing and what this means for the Funds.

Firstly, our clear bias is towards residential property for the following reasons. Compared to office, retail or industrial, there tends to be a deeper pool of potential purchasers of residential property and, thus, greater liquidity should the property need to be sold. Loan sizes are smaller and, combined with the fact that there are many more residential loans than commercial loans, enables a more granular and diversified portfolio. Lastly, residential property tends to be more homogenous I.e. a 3-bedroom house in a particular postcode will largely perform like others in that area, thus, making longitudinal studies more predictive and less influenced by one-off property-specific factors. We do in limited circumstances, finance commercial properties when they share some of the characteristics above.

When stress testing the Fund’s portfolio, we consider recent increases in property prices in addition to the possibility of a sharp decrease in property prices.

Borrowers faced with rapidly rising interest rates either via their current variable rate mortgages or rolling off of cheaper fixed rates will struggle to afford new and higher mortgage repayments, particularly when faced with the higher cost of living pressures, lower household savings and the possibility of a weakening job market. In this scenario, all borrowers are at risk, particularly those who recently upsized and took on a large mortgage with any potential government stimulus or relief measures likely to be less targeted towards meaningfully helping those borrowers vs lower loan balance/lower-income households.

Assessing this scenario, one needs to consider both the length of the loan, the current property valuation and how that valuation was derived. While on average the Fund lends just circa $62 against every $100 of equity, meaning technically prices would need to fall substantially over our 12 – 24 month term to adversely impact the fund, the analysis doesn’t stop there. For example, the valuation may consider ‘like’ properties sold in the prior 12 months and factor in an assumed growth since those sales. But has that property appreciated in that period? To answer that, we consider the qualifications and experience of the valuer, the valuer’s incentives influenced by who appoints/pays them (the lender, homeowner or real estate agent who wants to sell the property) and how ‘comparable’ are comparable properties which are used to substantiate a valuation, to name just a few. In short, the protection of capital in a market where property prices fall further is centred around conservative loan amounts against targeted property as detailed; however, such an approach without a critical assessment of how one determines it to be ‘conservative’ shouldn’t be overlooked.

We should also note that Manning has a relatively consistent purchasing pattern to avoid having significant exposure to loans originated at any particular point when valuations may be elevated. In this regard, investors can also diversify away some of this risk.

Many associate price increases with reducing the risk of property backed lending, however the opposite applies. Most simply, rapidly appreciating prices are more susceptible to mean reversion, or a significant increase in prices could cause a significant decrease. In this regard, the prior 12 months have been a healthy period in lowering this risk.

As we face a softening economy, some of these above considerations can materially and favourably influence the risk profile of the Fund. The Fund has never had a negative monthly return from credit which we are focussed on retaining.

The Fund delivered +0.75% in March, 8.09% over 12 months and 6.49% annualised since inception.

We are pleased to report the Fund’s portfolio of assets continues to perform strongly, and we believe, is well-positioned to continue delivering strong income returns with capital stability.

Over the past month, news headlines have reported on the challenges faced by US and European banks. While the media has focused on corporate missteps, we are interested in how loans have performed individually and when compared to broader markets. As a fixed-income investor, our main focus is on investments secured by underlying loans. Therefore, our first line of defence that protects our capital and investment return isn’t the institution as it is with equity, equity-like and corporate loan investments, but rather the performance of the underlying loans which continue in many of these cases to perform strongly.

We haven’t seen the same missteps locally given the very different construct of our banking/financial system and regulatory oversight. However, we are starting to see some key risk measures increase. Risk metrics such as personal insolvencies, loan arrears and defaults have fallen sharply below long-term averages since 2020 when consumer spending slowed and stimulus measures increased. This wasn’t a new norm but rather a point-in-time dynamic that we are now seeing fade with these measures moving towards longer-term averages. While such an increase can be sensationalised, it has been our long-held view that this would occur, and thus investment decisions have been assessed on higher stress rates. For instance, personal insolvencies in Australia are projected to increase, but even the Australian Governments upper bound projection of 35,000 in FY 30 June 2024 is not particularly elevated compared to longer-term averages, with an expected forecast of 25,000.

The observation that key risk measures are increasing is leading some to believe that interest rates have peaked locally, suggesting now is the time to add duration (buy longer-term bonds) to your portfolio. The basis being a recent downbeat consumption, inflation reading, and issues abroad reduce central banks’ ability to lift rates further. One could also argue interest rates might trend higher by examining longer-term data and that inflation remains above the RBA’s target. Selecting the right one will see positive fixed-income returns. Selecting the wrong shall likely see negative returns. Our preferred approach is to remain short-duration or select shorter investments focusing on finding assets that generate an attractive return with capital protections rather than trying to correctly forecast an inherently unknown interest rate path to deliver a positive return.

Beyond term deposits – What does a modern fixed income portfolio look like

Term deposits (TD’s) have long played an important role in many portfolios, providing both an income stream and a predictable return profile with capital stability, particularly for those who qualify for the Australian Government Guarantee. With increased global financial market volatility, many investors are asking what other low-volatility assets can help anchor their portfolio to chart a more predictable path through global uncertainty.

In approaching this, one may ask “how much more can I get from investing in fixed-income”. While important, this isn’t the right question to ask. A better question to ask is, “If a government-guaranteed term deposit is near zero risk, how much more risk am I willing to take?” Firstly, this depends on what role would this allocation plays in your portfolio. For example, is it similar to a term deposit with the primary drivers being income and capital stability or is it trying to deliver high returns acknowledging the greater risk and volatility that it entails?

Investors may also consider, where is this money coming from. For example, if the proposed investment amount is being held in cash and an investor isn’t trying to increase the portfolio’s risk budget or risk appetite, this suggests a lower-risk form of fixed income is appropriate. Should the money come from selling equities which many regards as higher risk, and there is no desire to change the portfolio’s overall risk profile, perhaps there is a greater risk appetite.

Investment options and varying degrees of liquidity

Examining risk further, there are three very broad categories that an investor should consider, being liquidity, investment term, and appetite for capital loss. In Australia, there are several investment options that offer varying degrees of liquidity. Some solutions offer the ability to exit their investment daily, either by redeeming from a fund or selling it on an exchange. Whereas other options offer less liquidity such as monthly redemptions or in the extreme, impose ‘lock ups’ which means an investor cannot access their capital during that term. It’s worth noting here that investing through a Fund which offers say daily pricing but is investing in illiquid assets should be considered differently from a Fund with daily pricing yet holds liquid assets. In general, the less frequent the redemption terms are, the higher the expected return. Practically speaking, an investor could ask, am I willing to forgo the ability to sell my investment from a daily schedule to monthly in exchange for a higher return?

Liquidity vs Duration

When building a modern fixed-income portfolio, it’s important to consider the ‘duration’ or ‘maturity profile’ of your investments. Simply put, this is how long your capital will be invested before it’s returned.  This is different from liquidity which recognizes you may be able to sell that investment either in the market or by redeeming from a fund. By way of example, purchasing a 10-year Australian Government bond may be quite liquid in that there is an established market to sell them however it is the longer duration or longer maturity in that technically, capital isn’t repaid for 10 years. The maturity influences the investment’s risk profile by making its current price more sensitive to changes in interest rates. If an investor believes interest rates are high and are likely to fall, one may prefer a longer maturity asset where its price rises as interest rates fall and vice versa. If an investor doesn’t wish to take on this risk, a short-maturity investment may be more appropriate as historically, its value little changes with interest rates.

Understanding the Asymmetric Return Profile: Why Fixed Income Can Be A Safer Bet.

Investing in fixed income requires an appreciation of how to differentiate it from other asset classes such as equities. For example, fixed income has, what is known as, an ‘asymmetric return profile.’ That is, the maximum return an investor can achieve is the expected yield to maturity (excluding any trading gains/losses) although they could lose 100% of their capital whereas equity can deliver the same downside but with a theoretical infinite return upside. This makes Fixed Income sound like a poor investment until one adjusts for the likelihood of those outcomes. A key difference between fixed income and equity is that traditional fixed income has a contractual obligation to make regular interest or coupon payments whereas, with equity, that decision is purely discretionary. In the event of tougher times, a fixed income obligation ranks above equity in that it must be repaid before an equity investor and therefore, is considerably lower risk. Fixed income noteholders may also impose specific so-called ‘covenants’ which give them greater control over the counterparty. For example, if any of the fundamentals of that counterparty deteriorate then there is a contractual obligation to have it repaid in full. Over our 7-year track record, we have found such covenants play a critical role in protecting capital with an investor in our flagship Fund investing $100 at inception would today be worth $153.55 and over that time, lost just $0.005. This compares to an equivalent investment in Australian Shares being worth just $146.54 (assuming equivalent timing and reinvestment of all dividends).

Once an investor understands their need for liquidity and how exposed they wish their investment to be to interest rates, one can more readily reduce the range of possible investment solutions before making an assessment on the chance of capital loss within each. For those who are seeking greater liquidity, public market bonds while lower on the expected return spectrum, are some of the most liquid. For investors willing to forgo some liquidity in exchange for a higher expected return, then there are a range of Private Credit Fund Managers in Australia who primarily focus on lending to non-investment grade corporates, financing development sites, or so-called asset-backed securities in which Manning specialises where investments are secured by hundreds if not 1,000’s of underlying loans.

As prefaced before, fixed income is all about avoiding capital loss and therefore, extracting the maximum benefits of this asset class. Being aware of and able to assess the risks is the key to investment success.

The Fund delivered +0.67 in February (noting February being a shorter month and therefore returns were marginally softer), 7.76% over 12 months and 6.46% annualised since inception.

We are pleased to report another strong return, continuing to outperform the RBA cash rate by 5.94% (12 months). Investors will note the higher RBA cash rate, which lifts the Fund’s return objective and, importantly, the return paid to the Fund on underlying investments. We see this inflation-fighting feature (i.e. returns post the impact of inflation are of the utmost importance to preserve the real value of capital) as a key benefit of the Fund and one naturally afforded to the Fund given the variable rate investments that we make.

Despite the Fund’s higher expected returns, our approach to risk management remains unchanged. We acknowledge the potential for the local economy to remain robust and therefore deliver further interest rate increases or to substantially slow, both of which puts pressure on investment portfolios. With that outlook, the team continues to insist on strong structural protections to protect our capital, maximising the benefits of diversification and remaining ‘short-dated’ or investing in shorter-term opportunities which over our history has proven to offer greater portfolio flexibility and lower risk profiles. We remain very active in managing the portfolios, mainly as credit spreads are wider than 12 months ago. Given the short dated nature of the portfolio, we continue to negotiate higher returns on equivalent assets to provide ongoing attractive return opportunities for the Fund.

We also note commentary in the market regarding some credit funds charging upfront fees (in addition to their ongoing management fees) on underlying investments and not passing these on to investors. Since our inception in 2015, all fees and returns paid by underlying investments are delivered to the Fund and therefore, investors.

The Manning team continues to be a substantial investor in the Fund alongside our clients. We are committed to continuing our seven year track record of delivering an attractive inflation adjusted return to our investors with strong capital stability, and very carefully investing the capital in select opportunities which we believe will perform through the economic cycle.