Market overview
Global markets had largely ignored many risks highlighted in the previous quarterly report, such as geopolitical tensions, a slowing Chinese economy, US President Donald Trump’s protectionist trade agenda, and the growing impact of climate change. This all changed on the so-called ‘Liberation Day’, 2 April 2025. While technically outside the March quarter, any analysis before this date now feels largely irrelevant.
Although President Trump had clearly signalled his intentions to impose sweeping and punitive tariffs against all US trading partners, most commentators had largely discounted this as political posturing, expecting him to back down. This proved not to be the case. From 2 April, global markets plunged into turmoil as it became apparent that Trump was resolute in starting trade wars with all countries, and most aggressively with China.
While all tariffs besides China have been postponed for at least 90 days (to allow for individual countries to negotiate with the US) this has seen global equity indices retreat from near all-time highs, with daily news flow causing financial markets to wildly fluctuate with a heightened risk of plunging the US economy into recession.
What has become more apparent is a trade war between the two largest world economies, the US and China, with tit-for-tat announcements to penalise goods traded between these nations. Even in the scenario that the US lifts punitive tariffs against Australia, our economy may be caught up in the trade war given our strong dependence on China as our largest trading partner.
Overall, it is unclear what the result of these radical policies will mean for the world economy and in particular the dominance of the US dollar and US Treasuries, as the world’s preferred safe havens since the conclusion of WWII and the establishment of the Bretton Woods system. The uncertainty and volatility creates both opportunities and threats, potentially marking the end of a long period of ‘risk-on’ environment and raising the prospect of asset price bubbles across multiple asset classes.
Central bankers have a very difficult role in this environment, with only the blunt instrument of monetary policy to navigate extreme volatility and dislocation available to them. If tariffs lead to increased inflation, then the correct response would be to tighten monetary policy. However, should these announcements lead the US and China (and perhaps other trading partners of the US) into recession, the response would be to ease monetary policy. The worst-case scenario is ‘stagflation’ where inflation increases, with stagnant economic growth and increasing unemployment.
Loan portfolio positioned to meet target return objectives
Against this heightened volatility and potential economic slowdown, the attributes of non-correlated monthly income from private credit, offers relative calm and relative value against most other asset classes. We have been actively engaging with clients and prospects to reinforce our disciplined, conservative approach to constructing our portfolios. Each loan within our portfolios have been carefully selected and scenario tested to withstand sharp declines in economic growth and recessions, with a focus on lending to market leading, well-established companies and non-bank lenders that serve prime quality borrowers.
The capital preservation philosophy of our firm has been designed to be resilient to extreme events. By avoiding pro-cyclical industries such as property construction/development, mining, tourism, hospitality and advertising, Revolution has worked to insulate the portfolio from the economic cycle. Revolution remains confident in the quality of its loan portfolio and its ability to continue delivering on the targeted portfolio objective of the RBA cash rate plus 4% to 5% through the cycle.
There has been significant media attention on the increased scrutiny of private debt funds in Australia. At Revolution, we welcome this scrutiny and have been proactive in communicating the key attributes that set our approach apart from many peers in the market. These points were recently covered in the recent webinar.
Portfolio and pipeline review
The Revolution Private Debt Fund II (the Master Fund) has a total fund size of A$2.83 billion as at 31 March 2025.
The Master Fund has been performing well*, meeting its target return of the RBA Cash Rate 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 54 loans as at 31 March 2025, with an average expected life of the portfolio being 1.0 years. The portfolio yield to maturity is 9.8%, with a credit spread of the portfolio above BBSW of 542 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 quarter. 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 the Master 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.
Source: Revolution Asset Management. See below for defined terms.
Revolution Private Debt Fund II (CHN3796AU)*
Performance as at 31 March 2025.
| Return | 1 month | Rolling quarter | 1 year | 3 years p.a. | 5 years p.a. | Since inception p.a (31 Dec 2019) |
|---|---|---|---|---|---|---|
| Fund II (after fees) | 0.74% | 2.20% | 8.84% | 8.17% | 7.28% | 7.08% |
| RBA Cash Rate | 0.35% | 1.05% | 4.44% | 3.54% | 2.14% | 2.07% |
| Active Return (after fees) | 0.39% | 1.15% | 4.40% | 4.63% | 5.14% | 5.01% |
* 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 Fund II and is not intended to compare an investment in Fund II to a cash holding. Loans held by Fund II are subject to borrower default risk and as such Fund II is of higher risk than an investment in cash.
Portfolio characteristics as at 31 March 2025
| Fund characteristics | Fund II |
|---|---|
| Yield to Maturity | 9.8% |
| Credit Spread | 542 bps |
| 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 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.Yield to Maturity (YTM) is the total return anticipated on the portfolio if the holdings were held until their maturity.
- Credit Spread is the spread over the swap rate.
- Interest Rate Duration is a systematic risk or volatility measure for bonds. It measures the bond portfolio’s sensitivity to changes in interest rates.
- Weighted Average Credit Rating is a measure of credit risk. It refers to the weighted average of all the credit ratings in the portfolio.
For more information on performance and the portfolio of loans or about the Revolution Private Debt strategy, contact us.
This information is for wholesale and professional investors only and has been prepared by 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 for the Revolution Private Debt Fund II, Revolution Wholesale Private Debt Fund II (collectively ‘the Funds’). Channel Capital Pty Ltd ACN 162 591 568 AR No. 001274413 (‘Channel’) provides investment infrastructure and distribution services for Revolution and is 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’).
This information contains general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person. It is intended solely for wholesale clients (including sophisticated investors) as defined under sections 761G and 761GA of the Corporations Act 2001 (Cth). Revolution is not licensed in Australia to provide financial product advice or other financial services to retail investors.
The information provided should not be considered personal advice, a recommendation, or an offer to invest in the Funds. Recipients should not rely on this information in making investment decisions. A Recipient should, before making any investment decisions, consider the appropriateness of the information, and seek professional advice.
Neither Revolution, Channel, CIML, FundRock NZ Limited or their representatives and respective employees or officers (collectively, ‘the Beneficiaries’) make any representation or warranty, express or implied, as to accuracy, reliability or completeness of this information 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 information is, or shall be relied upon, as a promise or representation, whether as to the past or the future. All investments contain risk. Past performance is not a reliable indicator of future performance.
For further information and before investing, please read the Information Memorandum available on request.