The first half of 2020 has certainly been an interesting one and the words ‘unprecedented times’ have been repeatedly used on a global scale. One of the sharpest stock market corrections amidst the COVID-19 breakout that has seen huge fiscal and monetary stimulus globally, was followed by a sharp rise in markets, with stock markets globally rebounding some 30% since the lows experienced in late March.
While no one can predict the future, we realise that the global fallout from this pandemic is material and likely to lead to fundamental changes in many economies and industries. The number of new cases in the United States has continued to rise and recently reached a new peak, while closer to home, we are seeing a second wave hit the state of Victoria, with New South Wales electing to close the state border for the first time in 100 years, with the last closure taking place in 1919 during the Spanish Flu pandemic. This second wave in Victoria has arrived during a period when restrictions in Australia were being eased, highlighting that while markets may have rallied, the economic and health consequences will likely be with us for a while yet.
The impacts from the pandemic have been widespread and have affected most industries globally. While various policy measures undertaken around the globe may have helped to soften the blow from the pandemic, it is likely to have a lasting impact on consumer behaviour, as well as how businesses and economies operate.
Revolution’s investment philosophy is centred around credit discipline and capital preservation, deliberately avoiding pro-cyclical industries and instead we remain focused on stable and defensive sectors that are typically less affected by demand disruptions. We understand the illiquid nature of the underlying assets, and structure our funds with limited liquidity and patient capital that avoids any forced selling. At the same time, it allows us to take advantage of market dislocations (like those recently witnessed) through the purchase of performing assets from other external funds that may not necessarily have had the same structure as our funds and which have since been forced to sell performing assets to generate liquidity.
Below you will find the portfolio update and June performance for Fund I and Fund II.
Fund I – Portfolio Review
Fund I is performing well and is currently delivering above its target return, which is cash plus 4% to 5% p.a. (gross of fees and expenses). The objective of Fund I is to achieve this return with low volatility and with the benefit of having security over the underlying assets.
As at 30 June 2020, Fund I held a total of 25 individual investments with an average life of the portfolio of 2.4 years. The credit spread of the portfolio above BBSW is 5.20%, above the original target of Fund I and the yield to maturity is currently at 5.29%. The weighted average credit rating of the portfolio is BB, which is in line with the initial target.
Fund II – Portfolio Review
Fund II currently has total commitments of $194m of which total investments that have been made (including those that are about settle) are a total of $167m. This represents a faster rate of deployment than originally anticipated as a result of the strong pipeline of attractive opportunities that have been presented through the current market dislocation.
As at 30 June 2020, Fund II held a total of 19 individual investments (with a further 3 investments settling imminently) with an average life of the portfolio of 2.6 years. The credit spread of the portfolio above BBSW is 5.58%, above the original target of Fund II and the average credit rating of the portfolio is BB-.
The deal pipeline is expected to be strong as a result of secondary market opportunities. Fund II has been able to take advantage of the dislocated secondary market by purchasing various high quality and performing assets at very attractive risk-adjusted returns from other funds that became forced sellers as a result of redemptions and rebalancing of portfolios.
While we expected the deal pipeline for new leveraged buyout transactions to be slow, we have been pleasantly surprised with a number of new transactions coming to market over the last quarter, the majority of which have been priced to take account of the current environment. This momentum is expected to continue, though we will maintain a strong credit discipline when assessing new investment opportunities.
Revolution Private Debt Fund I – Performance as at 30 June 2020*
||Since inception p.a.
|Fund I (gross of fees)
|RBA Cash Rate
* 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.
Revolution Private Debt Fund II (APIR: CHN3796AU) – Performance as at 30 June 2020*
|Fund II (gross of fees)
|RBA Cash Rate
* Performance is for the Revolution Private Debt Fund II 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 2020
|Yield to Maturity
|Interest Rate Duration (yrs)
|Weighted Ave. Credit Rating
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.