Future proofing portfolios through Australian Private Debt

This year’s Portfolio Construction Forum Strategies Conference was filled with inspiring investment ideas from a diverse range of managers. Our investment manager partner, Bob Sahota, CIO of Revolution Asset Management shared his quarter of a century long experience and insight in his discussion about Australian private debt as an alternative and defensive asset class.

Highlights from Bob’s session:

• The biggest enemy to long term wealth creation is the focus on short-termism.
• The relative size of the Australian private debt market is a substantial one at $2.8 trillion – it is larger than the Bloomberg AusBond Composite Index, the S&P/ASX 200 Index and Australia’s superannuation savings pool.
• Australian private debt has been growing at a compound annual growth rate of 7.6% since 2003.
• Private debt has largely been a secret asset class due to it being dominated by bank balance sheets but large shifts in regulation are opening up avenues for non-bank lenders.
• Private debt can play an important role in portfolios as it is not correlated to traditional asset classes and offers true diversification.
• Investors need to pay attention to risk at this point of the global economic cycle.

How can private debt future proof client portfolios?

• Structural protections: Australian private debt typically offers seniority, security, covenants, protection from M&A activity and cash flow leakage, and demonstrates attractive relative value.
• Diversification: through exposure to companies and industries not readily available in public markets, whilst also offering exposure away from the Australian financial sector.
• Inflation hedge through a floating interest rate: conventional duration risk is mitigated as investments are floating rate in nature, providing a hedge against inflation.
• Income stream: contractual loan agreements stipulate the interest rate (in terms of margin over the floating interest rate) and payment frequency by the borrower to the lender, for the life of the investment.
• Low correlation to major asset classes: being largely illiquid and floating rate, private debt exhibits low correlations to other major asset classes such as investment grade bonds and international equities.

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This information is for institutional and professional investors only and has been prepared by Channel Investment Management Limited ACN 163 234 240 AFSL 439007 (‘CIML’) who is the Trustee and issuer of units in the Revolution Private Debt Fund I (‘the Fund’). Revolution Asset Management Pty Ltd ACN 623 140 607 AFSL 507353 (‘Revolution’) is the Investment Manager for the Fund. Channel Capital Pty Ltd ACN 162 591 568 (‘Channel’) is Revolution’s non-investment services provider. Neither CIML, Channel or Revolution, their officers, or employees make any representations or warranties, express or implied as to the accuracy, reliability or completeness of the information contained in this email and nothing contained in this email is or shall be relied upon as a promise or representation, whether as to the past or the future. Past performance is not a reliable indication of future performance. This information is given in summary form and does not purport to be complete. Information in this email, should not be considered advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling units in the Fund and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. For further information and before investing, please read the Information Memorandum available on request.

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