Revolution Private Debt Fund II – Five-year milestone
We thank you for your ongoing support as we mark the five-year milestone of the Master Fund.
The Revolution private credit strategy has been built on a foundation of investor-first principles, disciplined credit management, and a differentiated approach. All origination fees are passed directly to our investors, ensuring alignment of interests and avoiding performance fee incentives that could drive undue risk-taking. Our strategy spans three private credit sectors—leveraged buyouts, asset backed securities, and non-development real estate loans—enabling diversification and the potential for superior risk-adjusted returns while avoiding concentrated risks in a less liquid Australian and New Zealand market. With over 20 years of experience navigating economic cycles, including the GFC, we maintain a rigorous focus on capital preservation by lending to resilient, non-cyclical businesses and avoiding high-risk loans or barbell strategies. We are pleased to have delivered stable, income-focused outcomes for our investors.
Market overview
As we begin to formulate our view on the new year it becomes apparent that the state of the world at the conclusion of 2024 seems to be in stark contrast to that of the financial markets in general. There have been some very significant developments throughout the course of the last few years that may prove to have a profound impact that have not affected the health of financial markets and may emerge in 2025.
Global impacts
It is of Revolution’s opinion that the world is facing some significant tail risk events including:
- The highest level of global conflict since World War II
- Donald Trump being re-elected as the leader of the free world
- Inflation subsiding faster than expected in the developed world
- Impact of climate change
As a result of the above factors there is a heightened risk of economic slowdown particularly for our largest trading partner, China, which is facing structural deflation and anti-China sentiment particularly with US President-elect Donald Trump in the White House.
In the face of these major risks, if one observes the financial markets, these risks have been largely ignored as evidenced by equity markets at or near record highs and the stellar performance of bitcoin. Even residential real estate valuations have had a muted impact of a significantly higher interest rate environment and are tipped to rise again in 2025 despite ongoing cost of living pressures.
Australian and New Zealand market
In the Australian and New Zealand private debt market, there has been consistent press regarding the continuing stress in the real estate development market with several high-profile projects being subject to enforcement actions and private debt lenders holding impaired loans on semi-complete collateral.
It is a timely reminder of why Revolution’s investment strategy does not include this type of lending.
Despite being the attraction of many private debt managers with the marketing spiel of ‘bricks-and-mortar’ security with conservative estimate Loan to Value Ratio’s on completion, these loans are inherently high risk, particularly in periods of cost inflation. In these periods not only do equity holders lose their capital, but private lenders also face not getting their initial loan principal repaid.
However, the attraction of private debt as an asset class remains as a high income orientated, lowly correlated defensive investment class, with the following provisos:
- The manager has an investment strategy that centres on diversification.
- The manager has long-term experience through full market cycles.
- Lending to counterparties that are well established with high barriers to entry with robust and resilient cashflows.
These are key attributes in all loans that have been carefully selected in Revolution’s investment portfolios that continue to deliver the stated investment objective of the Funds that are managed.
Portfolio and pipeline review
The Revolution Private Debt Fund II (the Master Fund) has a total fund size of A$2.63 billion as at 31 December 2024.
The Master Fund has been performing well*, meeting its target return of cash plus 4% to 5% p.a. (net of fees and expenses) since inception**. The objective of the Fund is to achieve this return with low volatility and with the benefit of having security over the underlying assets.
The Master Fund held a total of 53 loans as at 31 December 2024, with an average expected life of the portfolio being 1.2 years. The portfolio yield at maturity is 10.1%, with a credit spread of the portfolio above BBSW of 560 basis points (bps). The average credit rating of the portfolio is BB+.
The deal pipeline in Australia and New Zealand remains robust, which should allow for continued strong deployment. In Leveraged Loans (LBO), activity increased in the second half of the year. The Asset Backed Securities (ABS) market also remains active. Revolution has been focused on upsizing many of its existing private warehouse investments as the size of facilities and fund’s appetite grows in tandem. Additionally, Revolution continues to find and capitalise on attractive secondary market opportunities across sectors.
Source: Revolution Asset Management. See below for defined terms.
Revolution Private Debt Fund II (CHN3796AU)*
Performance as at 31 December 2024.
| Return | 1 month | Rolling quarter | 1 year | 2 years p.a. | 3 years p.a. | 5 years p.a. | Since inception p.a. (31 Dec 2019) |
|---|---|---|---|---|---|---|---|
| Fund II (after fees) | 0.46% | 1.94% | 8.98% | 8.74% | 7.87% | 6.98% | 6.98% |
| RBA Cash Rate | 0.38% | 1.10% | 4.46% | 4.18% | 3.19% | 1.96% | 1.96% |
| Active Return (after fees) | 0.08% | 0.84% | 4.52% | 4.56% | 4.68% | 5.02% | 5.02% |
* Performance is for the Revolution Private Debt Fund II – APIR: CHN3796AU, and is based on month end unit prices before tax. Net performance (after fees) is calculated after management fees and operating costs. Individual Investor level taxes are not taken into account when calculating returns. 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. ** The comparison to the RBA Cash Rate is displayed as a reference to the target return for the Master Fund and is not intended to compare an investment in the Master Fund to a cash holding. Loans held by the Master Fund are subject to borrower default risk and as such the Master Fund is of higher risk than an investment in cash.
Portfolio characteristics as at 31 December 2024
| Fund characteristics | Fund II |
|---|---|
| Yield to Maturity | 10.1% |
| Credit Spread | 560 ps |
| Interest Rate Duration (years) | 0.1 |
| Weighted Ave. Credit Rating | BB+ |
Source: Revolution Asset Management. See below for defined terms. These ‘forward-looking statements’ are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed. Although we believe that the Master Fund’s anticipated future results, performance or achievements expressed or implied by those forward-looking statements are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements.
Definition of terms
- 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.
For more information on performance and the portfolio of loans or about the Revolution Private Debt strategy, contact us.
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. Annualised Net Return is the monthly net return of the Fund annualised for the next 12 months.
This information has been prepared by the Investment Manager, Revolution Asset Management Pty Ltd ACN 623 140 607 AFSL 507353 (‘Revolution’). Channel Investment Management Limited ACN 163 234 240 AFSL 439007 (‘CIML’) is the trustee and issuer of units in the Revolution Private Debt Fund II and Revolution Wholesale Private Debt Fund II (collectively ‘the AU Funds’). Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 (‘Channel’) is Revolution’s non-investment services provider and the holding company of CIML.
FundRock NZ Limited is the issuer of units in the Revolution Private Debt PIE Fund (NZD) (the ‘NZ Fund’). Public Trust is the independent trustee of the Scheme of the Fund. Revolution is the appointed Investment Manager for the NZ Fund. Refer to fundrock.com/fundrock-new-zealand for more information. The NZ Fund is intended for the exclusive use of wholesale investors, as defined by the Financial Markets Conduct Act 2013.
This information is supplied on the following conditions which are expressly accepted and agreed to by each interested party (‘Recipient’). The information is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person. The information is not intended for any general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of Revolution and respecting Revolution and its investment activities; its use is restricted accordingly. All such information should be maintained in a strictly confidential manner. This information does not purport to contain all of the information that may be required to evaluate Revolution, or its investment strategy and the Recipient should conduct their own independent review, investigations and analysis of Revolution and its investment strategy and of the information contained or referred to in this document. Neither Revolution, Channel, CIML, FundRock NZ nor their related bodies corporate, representatives and respective employees or officers (collectively, the Beneficiaries) make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the information contained in this document or subsequently provided to the Recipient or its advisers by any of the Beneficiaries, including, without limitation, any historical financial information, the estimates and projections and any other financial information derived there from, 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 indicator of future performance. The information in this document has not been the subject of complete due diligence nor has all such information been the subject of proper verification by the Beneficiaries. Except insofar as liability under any law cannot be excluded, the Beneficiaries shall have no responsibility arising in respect of the information contained in this document or subsequently provided by them or in any other way for errors or omissions (including responsibility to any person by reason of negligence). An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. For further information and before investing, please read the offer document which is available upon request.