Angela Ashton

Specialist alternatives research firm Evergreen Ratings, has highlighted the increased adoption of private debt as an attractive investment asset class in its latest Ratings Report.

“However, this market is increasingly diverse and growing rapidly, so it is not easy to understand its complexities,” notes Angela Ashton, founder and CEO of Evergreen Ratings.

“We assess a breadth of investment managers operating in this space and over and above the standard investment essentials in a private debt mandate, and we believe there are three themes that distinguish excellent investment managers in the sector. They are:

1. likes the assets to lend against (understand the underlying market dynamics that the borrower operates in and ideally grow or refi debt participation in line with borrower growth)
2. lend where the money is genuinely needed (identify where regulation (namely, bank disintermediation) and other impediments have diminished credit availability – the most attractive risk-adjusted returns are likely found where these forces are most extreme and the supply and demand of capital are unbalanced)
3. the easier it is to scale, the less attractive it is likely to be (institutional investor demand is often heavily influenced by visibility and those debt managers seeking such FUM flow often target a private debt opportunity set that focuses on ideas that are simple to raise capital, meaning they tend to crowd toward similar opportunities).”

“Keeping these principles in mind, we are of the strong view that investors that are selective in private debt investment manager choice will be well served from a risk and return perspective, “ notes Ashton.

Given this backdrop, the latest Evergreen Report has awarded a “COMMENDED” rating to iPartners Investment Fund (IIF), one of the largest non-institutional private credit funds in Australia.

Evergreen notes the fund, which targets returns of 8-10 %pa, posted a first-year return of 9.71% net of fees, “excels in the Australian private debt peer group both in relation risk-adjusted returns and, related to this, collateral protections, particularly with respect to ABS lending.”

Evergreen notes: “Returns, at 9.7% p.a. since inception, are strong due to a high degree of crystallisation of two of the three private debt premia components, specifically a complexity and  supply/demand premium.

“iPartners is the only manager that Evergreen Ratings is aware of with a structure that (appropriately) provides liquidity to an inherently illiquid asset class.”

According to iPartners CEO, Travis Miller: “IIF provides investors with a diversified portfolio of high yielding credit investments, with low portfolio concentration, and a strong preference for investments that produce risk adjusted returns.

“The Fund evolved from investor feedback where investors wanted to combine their direct co-investing with iPartners with a pooled co-investment vehicle,” says Miller.

Evergreen further notes: “All loans are secured against either a portfolio of loans, receivables (both in relation to ABS), property (CRE debt) or cashflows (corporate debt).”

The target portfolio allocation is ABS: 0-40%; CRE: 0-40%; Corporate debt: 0- 40%.

As at 31 March 2021, the weighted average loan maturity is 1.14 years.

“ABS is the Manager’s speciality, with CRE and corporate debt investments undertaken on a co-investment basis with select Australian domiciled private debt managers all of which are considered best-of-breed in their respective private lending subcategories,” says Evergreen.

The Evergreen report notes the success of the fund achieving return targets and that “the Manager levies a particularly ‘skinny’ all-in fee of 0.6% p.a”

The Fund has grown steadily since inception, and sits at $13.70m as at March 2021, and represents a modest component of the $650m across the iPartners platform.

The Evergreen reports notes the track record of IIF is short, “but we take conviction from strong debt management processes. Merits and point of differentiation are exceptional. The Fund excels in the Australian private debt peer group both in relation risk-adjusted returns and, related to this, collateral protections, particularly with respect to ABS lending.”

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