Syndicated loans offer Australian investors diversification and dependable income

Richard Quin

For Australian investors seeking high income without fixed rate risk, syndicated loans present an alternative to traditional fixed income, says Richard Quin, chief investment officer at Bentham Asset Management.

Syndicated loans are arranged by groups of banks to finance large companies, for mergers and acquisitions, buyouts or recapitalisation, and provide senior secured, first lien exposure at a floating rate, which limits downside risk.

“Credit selection is critical. You must be highly diversified, but you also have to avoid the losers. That requires deep research and a network experienced managers in this asset class,” Quin says.

The diversified portfolio structure of the Bentham Syndicated Loan Fund is spread across industries and issuers, and is central to managing credit risk, offering Australian investors access to an institutional market that trades three to four billion dollars a day.

Unlike the private debt market, syndicated loans are daily priced and actively traded, giving investors meaningful liquidity that is rarely available in comparable credit strategies.

The strategy is managed by Bentham’s SIG team, established in 1997, which comprises 70 investment professionals operating across New York and London, covering approximately 800 corporate issuers across the US and European markets.

For income focused investors, including retirees, the fund’s track record is notable. It has delivered a constant income stream for over more than 22 years, with returns approximating 7.5 per cent per annum before fees and currently yields around 9.1 per cent. Monthly distributions have been paid consistently for more than 15 years.

“This investment suits investors seeking a return above bank bill without fixed rate exposure,” Quin says. “They are taking the current bank bill rate and adding a credit risk premium and that gives them a higher income.”