Private Debt Market Quarterly Review – December 2019

2020-01-31T10:24:50+00:00 January 31st, 2020|Insights|

Insights into Australian and New Zealand Private Debt

During the December quarter we originated a number of investments, which allowed the Revolution Private Debt Fund I (Fund I) to deploy a significant amount of capital. Fund I is fully committed as at 31 December 2019, with a number of deals waiting to settle in early Q1 2020, which is ahead of the original forecast. Pleasingly, this rate of deployment has been executed whilst maintaining strong credit discipline.

Revolution Private Debt Fund II launched

In December 2019, Revolution launched its second offering in the Australian and New Zealand private debt market via the Revolution Private Debt Fund II (Underlying Fund) and the Revolution Wholesale Private Debt Fund II (Wholesale Fund).

The Underlying Fund is an open-ended fund investing directly in Australian and New Zealand leveraged loans (private and listed company debt and leveraged buyout debt), commercial real estate loans and asset-backed securities, with a minimum application amount of $1 million.

The Wholesale Fund invests in the Underlying Fund and is designed specifically for wholesale and sophisticated investors to access this growing asset class by offering:

  • an open-ended structure with quarterly applications and redemptions;
  • indirect exposure to a portfolio of Australian and New Zealand private debt via the Underlying Fund; and
  • a smaller minimum investment amount of A$100,000 with further increments of A$25,000.

Revolution Private Debt Fund I in review

Fund I is performing well and is currently delivering above its target return of the RBA Cash Rate plus 4% to 5% p.a. (gross of fees and expenses). The aim of Fund I is to achieve this return with low volatility and with the benefit of having security over assets.

We continue to maintain a strong credit discipline based on relative value across the three key focus areas of Fund I. Below is a snap shot of the transactions made during the quarter.

Australian and NZ Leveraged Loans – Three more commitments were made during the December 2019 quarter in the leveraged loan space across sectors such as healthcare and consumer staples.

Asset-Backed Securities (ABS) – Fund I invested in one additional private residential mortgage ABS Warehouse facility and one public Auto ABS transaction to a listed and well-established non-bank originator.

Real estate debt (commercial) – Several opportunities were presented to Revolution during the quarter, a vast majority of them involved construction or development loans or have been backed by residential property. The investment strategy of Fund I excludes real estate debt loans of this nature as they largely do not generate stable cashflows from the underlying properties, with loan repayments being reliant solely on asset sale.

Revolution Private Debt Fund I

As at 31 December 2019*

Returns 1 month 3 months 6 months FYTD 1 year Since inception
(11-Dec-2018)
Fund (before fees) 0.55% 1.60% 3.26% 3.26% 6.85% 6.73%
Benchmark 0.07% 0.19% 0.45% 0.45% 1.18% 1.20%
Active return (before fees) 0.48% 1.41% 2.81% 2.81% 5.67% 5.53%

* 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 I current portfolio characteristics

As at 31 December 2019

Characteristic (deployed capital) Fund
Net Internal Rate of Return (after fees) 5.80%
Yield to Maturity 6.27%
Credit Spread +537bps
Interest Rate Duration (yrs) 0.10
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 Revolution Private Debt Fund II, 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.