Australian and New Zealand Private Debt Market Insights and Performance Update

Market overview

The first half of 2019 ended with extraordinary returns being achieved from most asset classes, which was a continuation from the trend that we saw in the first quarter of 2019. However, the worrying developments are around slowing global growth and persistently low inflation, with some global central banks having started their easing policies, and others in position to act in response to these threats. The key market issues for the second half of 2019 will be in response to the continuation of the US/China trade truce, a poor corporate earnings season and the US Federal Reserve (the Fed) potentially easing the interest rate less than current market expectations.

Fund I – Portfolio and Pipeline Review

The Fund is performing well and is currently on track to deliver above its target return, which is cash plus 4% to 5%p.a. (gross of fees and expenses). The objective of the Fund is to achieve this return with low volatility and with the benefit of having security over assets. In previous correspondence, Revolution has articulated that the large Australian banks have reduced their appetite for lending in the key focus areas of the Fund, and this thematic was reinforced over the first half of 2019. This is evidenced by a strong pipeline of opportunities for investments that have presented themselves over the last three to six months, that sit well within the risk /return spectrum of the Fund’s investment strategy. Revolution continues to maintain a strong credit discipline based on relative value across the three key focus areas of the Fund being: Australian and NZ Leveraged Loans, Asset Backed Securities (ABS) and Real Estate loans. There are a number of attractive investments that are currently in the advanced pipeline and documentation phase which may result in the Fund deploying greater than 50% of the committed capital of over the next quarter. At this current deployment rate, it is expected that the Fund will be fully invested by year end, which is ahead of its original forecast. Pleasingly, this rate of deployment has been executed whilst maintaining strong credit discipline.

Revolution Private Debt Fund I (CHN7934AU) – Performance as at 30 June 2019*

Returns 1 month 3 months 6 months Since inception p.a.
Fund I (gross of fees) 0.72% 1.83% 3.47% 3.73%
RBA Cash Rate 0.11% 0.37% 0.73% 0.81%
Excess return 0.61% 1.46% 2.74% 2.92%

* Performance is for the Revolution Private Debt Fund I and is based on month end unit prices before tax in Australian Dollars. Gross performance is stated excluding all fees, costs and taxation. This is historical performance data. It should be noted the value of an investment can rise and fall and past performance is not indicative of future performance.

Portfolio characteristics as at 30 June 2019

Fund characteristics Fund I
Yield to Maturity 6.16%
Credit Spread 495 bps
Interest Rate Duration (years) 0.16
Weighted Ave. Credit Rating BB

Source: Revolution Asset Management. See below for defined terms.

For more information on performance and the portfolio of loans or about the Revolution Private Debt strategy, contact us.

^ The Net Internal Rate of Return (IRR) is the net return earned by investors over a particular period, calculated on the basis of the weighted cash flows to and from investors, after the deduction of all fees. ^^ Yield to Maturity (YTM) is the current total return anticipated on the portfolio if the portfolio is held until it matures. ^^^ Credit Spread is the weighted average credit margin over the bank bill swap rate (BBSW), which is the market benchmark rate. Interest Rate Duration measures how much bond prices are likely to change if and when interest rates move and is measured in years. ## The Weighted Average Credit rating is used to indicate the credit quality of a portfolio and is an aggregate of the internal credit ratings of the portfolio’s holdings, weighted by exposure size. Internally rated by Revolution on the basis of ratings substantially equivalent to Standard & Poor’s ratings. Examples of ratings include credit ratings issued by Moody’s, Fitch and Kroll Bond Rating Agency.

This information is for institutional and professional investors only and has been prepared by Revolution Asset Management Pty Ltd ACN 623 140 607 AFSL 507353 (‘Revolution’) who is the appointed investment manager of the Revolution Private Debt Fund I, the Revolution Private Debt Fund II and the Revolution Wholesale Private Debt Fund II (together ‘the Funds’). Channel Investment Management Limited ACN 163 234 240 AFSL 439007 (‘CIML’) is the Trustee and issuer of units for the Funds. Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 (‘Channel’) provides investment infrastructure services to Revolution and Channel and is the holding company of CIML. None of 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, including forecast information, contained in this document and nothing contained in this document 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. All investments contain risk. This information is given in summary form and does not purport to be complete. To the extent that information in this document is considered advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling units in the Funds please note that it 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 relevant Information Memorandum available on request.