Andrew Lockhart

To support growth of its SME lending, Metrics has acquired Bigstone Finance, which brings deep experience and valuable relationships in this dynamic sector of the Australian economy.

Metrics Managing Partner Andrew Lockhart said the addition of the Bigstone team to the funding capability of Metrics would create the scale and focus for Metrics Business Finance to become a significant competitor in the SME and commercial property markets.

“Establishing Metrics Business Finance is a natural extension of Metrics’ existing skills and experience in non-bank lending to Australian business,” Mr Lockhart said.

“We believe that there is an exciting opportunity for Metrics in this market and that Metrics Business Finance can make a meaningful contribution to the task of funding SMEs and commercial property in Australia.”

Metrics was established in 2011 and manages a suite of ASX listed and unlisted funds with $10 billion assets under management and providing in excess of $15 billion in private credit to large corporates and other businesses in Australia and New Zealand.

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Andrew Lockhart

Metrics Credit Partners (Metrics), a leading Australian non-bank corporate lender, has joined the Net Zero Asset Managers (NZAM) initiative, marking its commitment to supporting the goal of net zero greenhouse gas emissions across its portfolio of loans and its own operations by 2050, if not sooner.

Metrics is an investor signatory of the initiative, which guides 220 groups managing US$57.4 trillion of investor funds in their efforts to limit warming to less than 1.5 degrees Celsius and support investment aligned with net zero emissions by 2050. In joining the NZAM, it has also become part of the Glasgow Financial Alliance for Net Zero which brings together the financial sector to accelerate the transition to a net-zero economy and the UN “Race to Zero” which aims to build business and civil society momentum towards addressing climate change.

Participation in the Net Zero Asset Managers initiative coincides with Metrics joining the Investor Group on Climate Change (IGCC), a collaboration of Australian and New Zealand investors focusing on the impact that climate change has on the financial value of investments.

Metrics joined IGCC in September and committed to the NZAM initiative to provide a plan for the firm’s activities and a measure of accountability for its investors, customers and employees.

As part of its commitment, Metrics is required to submit a plan to achieve net zero emissions and provide annual reporting on its progress toward that goal. Metrics is developing science-based targets for Scope 1, 2 and 3 greenhouse gas reductions and, as part of this, has engaged consultants to review emissions across its portfolio and its own operations.

Metrics Managing Partner Andrew Lockhart said investors and asset managers have a vital role to play in helping address the environmental impacts of the businesses they support.

“Metrics is determined to play a leading role in promoting and assisting with the transition to a low carbon economy.

“This presents an enormous opportunity and Metrics is committed to ensuring that we both lead by example and ensure our stakeholders have the means to participate in achieving a just and timely transition. Metrics is proud to join IGCC and commit to the Net Zero Asset Managers initiative to further this goal.”

Metrics provides private credit funding to Australian and New Zealand business and is a significant lender to the commercial property sector through a suite of listed and unlisted funds. Since being founded in 2011 it has provided more than $15 billion to borrowers across multiple industries and sectors. As one of the largest non-bank providers of private credit in Australia, Metrics actively promotes the development of the local capital markets and long-term, sustainable business practices to address the challenges of climate change.

Metrics has already taken several steps to enhance its capabilities for sustainable investing and achieving ESG outcomes, including:

• the appointment of experienced executive Alison Chan as Investment Director – Sustainable Finance
• updating its ESG policy
• becoming a Founding Member of the Australian Sustainable Finance Institute which is an unprecedented collaboration formed to help shape an Australian economy that prioritises human well-being, social equity and environmental protection, while underpinning financial system resilience and stability
• becoming the first Australian non-bank asset manager to join the Climate Bonds Initiative which aims to help redirect capital towards investment that can help achieve net zero emissions.

By joining IGCC, Metrics becomes part of a global group of investors collaborating to pull together and elevate the best investor guidance on tackling the climate crisis and advocate collectively for public policy to accelerate the net-zero transition – called the Investor Agenda.

At the COP26 meeting in Glasgow this week the Investor Agenda presented a statement, signed by 733 investors with over US$52 trillion in assets under management – around 50 per cent of the global total, urging governments to raise their climate ambition to limit global warming to no more than 1.5 degrees, implement meaningful emissions reduction policies, mandate climate-related financial reporting in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), and deliver COVID-19 economic recovery plans that support a just transition to net-zero emissions by 2050 or sooner.

The 2021 Global Investor Statement reads: “…we believe that those who set ambitious targets in line with achieving net-zero emissions and implement consistent national climate policies in the short- to medium-term, will become increasingly attractive investment destinations.”

“Full implementation of the Paris Agreement will create significant investment opportunities in clean technologies, green infrastructure and other assets, products and services needed in this new economy.”

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Andrew Lockhart

As investors seek alternative sources of yield, many are recognising that investing in directly originated private loans to Australian companies can generate an important source of alternative income.

In response to this increasing demand, Australia’s leading non-bank corporate lender Metrics Credit Partners (Metrics) has launched a new unlisted private debt fund.

The Metrics Direct Income Fund seeks to provide investors with returns of 3.25% a year above the Reserve Bank of Australia cash rate, which is currently 0.25% (for a total target return of 3.50%). Income is expected be paid to investors monthly.

The fund provides access to the Australian corporate debt market, through an investment exposure to a diversified portfolio of loans to more than 150 Australian companies.

Successive rate cuts mean some investors in cash and Australian government bonds are receiving returns that are below the annual rate of inflation – potentially losing money on every dollar they have invested (in real returns).

Andrew Lockhart, Managing Partner at Metrics, suggested these investors consider an investment providing exposure to corporate loans, which can offer more attractive risk-adjusted returns.

“The Australian corporate loan market is an attractive opportunity that should be considered by investors, seeking to provide superior risk-adjusted returns compared to asset classes such as bonds.

Like all fixed income, it helps to provide portfolio diversification, along with a stable cash yield with low risk of capital loss compared to equities.

This is particularly important for retirees, who generally need to generate regular income to fund their lifestyle needs, while also protecting their capital base,” he said.

Mr Lockhart noted that many equity investors had recently seen their income cut as companies have reduced their dividend payments.

“This fund seeks to provide an alternative source of income for investors,” he said.

The Metrics Direct Income Fund is managed by an experienced and active management team with a proven track record in originating, structuring, negotiating, managing and distributing private debt.

Metrics, established more than seven years ago, has built a highly skilled team expert in providing loans to Australian companies.

“In a low-rate and low-yield environment, the Metrics Direct Income Fund provides a potential investment option for investors – such as retirees and self-managed super funds – to replace their declining dividend and interest returns with an alternative source of income,” Mr Lockhart concluded.

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Andrew Lockhart

As global equity markets turn down on increasing concerns about the economic impact of the coronavirus, both investors and their advisers have been recommended to review their portfolios’ downside protection.

Andrew Lockhart, Metrics Managing Partner, said the prolonged bull run in equities and the low interest rate environment had driven many investors into overweight positions in growth assets.

“In the current environment, it is important for advisers and investors to stress test portfolios and ensure adequate downside protection,” he said.

Mr Lockhart noted that investments that are senior in a company’s capital structure and rank ahead of equity, result in less volatility and lower correlation than investments in equity markets.

“When markets begin to rise again, these assets rise from a higher point and obtain greater cumulative benefits from compounding returns,” he said. “Effectively, losing less requires less to bounce back.”

Downside protection is a key feature of Australia’s corporate loan market, which offers capital stability and consistent returns throughout market cycles.

“Regardless of conditions in equity markets, Australian corporates still have to borrow and refinance their loans, and continue to pay interest on current loans,” Mr Lockhart  said.

“As such, an investment in defensive asset classes such as corporate loans has historically provided an important source of downside protection in previous downturns.”

Preserving capital does not mean losing income

While preserving capital is key for pre-retirees and retirees, corporate loans can also provide an important source of income, from the interest corporate borrowers pay.

As they are slightly higher up the risk curve than government bonds, corporate loans offer attractive income returns.

“Currently, Australian government bonds are generating around 2%, which is similar to the rate of inflation,” Mr Lockhart said.

“Rather than investing in these assets for effectively no return, by taking on slightly more risk investors can obtain reliable returns of between 4-10% from the direct lending to Australian companies.

“And for those investors who require liquidity, an investment in an ASX-listed fund providing exposure to a diversified corporate loan portfolio can provide daily entry and exit – with income paid monthly.”

Strong local corporate loan assets

Corporate loans are loans made to businesses of scale (ie not SMEs) for a specific purpose, such as working capital, real estate, capital expenditure and acquisitions and returns are generated from the interest they pay.

This subset of fixed income is classified as a defensive investment as it is structured with embedded protections such as floating rates, providing predictable yields and low volatility.

While corporate loss rates are low, averaging 0.32% over the past 10 years, Mr Lockhart said it is important for investors to tap into well-diversified portfolios that effectively spread risk.

“Corporate loan fixed income portfolios with around 150 such loans provide diversification across sectors and loan tenors, and can therefore be a valuable addition to an investor’s fixed income allocation,” he said.

A corporate loan fund can provide exposure across a range of industry segments including energy, industrials, consumer staples, healthcare, IT, utilities, infrastructure and commercial real estate.

“With the recent fall in equities markets and growing uncertainty in global markets, we believe corporate loans warrant a closer look for investors seeking downside protection,” Mr Lockhart concluded.

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Andrew Lockhart

A slowdown in growth for the big four and regional banks is being offset by investor interest in the burgeoning growth of non-bank lenders.

This is evident in the recent capital raising by Australasia’s leading non-bank lender Metrics Credit Partners (Metrics), for its ASX listed MCP Master Income Trust (ASX:MXT).

Its current $638 million Entitlement and Shortfall offer is being snapped up, with subscriptions of more than $300 million already received from self-managed super funds (SMSFs),high net worth individuals  and other investors.

Metrics is undertaking the raising to generate further funds to meet increasing demand for loans from corporate, project and commercial real estate borrowers.

Andrew Lockhart, Managing Partner at Metrics, said: “Corporate, project and commercial real estate borrowers are increasingly seeing non-bank lenders as an important source of capital, closing the gap left by the banks.

Investors re increasingly recognising this shift in the market and the opportunities it provides them to gain exposure to the private credit market and an investment that is uncorrelated to listed equities or bonds.”

MXT has consistently delivered its investors a net return of 5.45% a year since listing in October 2017.

“The fund provides an easy way for investors of all types to replace their declining fixed income and term deposit returns with a higher, yet consistent and diversified, source of income,” Mr Lockhart said.

He noted Australian government bonds were generating less than 2%, similar to the rate of inflation of 1.7%.

“Rather than investing in government bonds for effectively no return, by moving just slightly along the risk curve from bank term deposits and government bonds, investors can obtain reliable returns of between 4-10% a year from the direct lending to Australian companies,” he said.

The Metrics offer is a pro-rata non-renounceable 1 for 2 entitlement offer of new fully paid ordinary units to eligible unitholders at an issue price of $2 per unit.

Taylor Collison Limited is acting as lead arranger with other joint leader managers being Morgans Financial Limited, Ord Minnett Limited and Wilsons Corporate Finance Limited. Co-managers are Bell Potter Securities Limited and Escala Partners Pty Ltd. Pinnacle Investment Management Limited is the distribution partner.

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Andrew Lockhart

In the ‘lower for longer’ interest rate environment, investors are naturally being drawn to investments that suggest high yields for relatively low levels of risk.

There is no shortage of them on the market – from funds that include exotic Queensland islands to LITs that invest in a complex collection of high yield global bonds.

However, when considering any investment it is important to remember that high returns can come with higher risk, the nation’s leading non-bank lender Metrics Credit Partners has cautioned. (After eight years and $8.5 billion of lending, Metrics understands the opportunities and risks in fixed income investments.)

For example, Andrew Lockhart, Managing Partner of Metrics, said staying with local fixed income could be a safer strategy for investors.

“Investors often include international bonds in their portfolios to take advantage of higher interest rates or yields and to diversify their holdings. However, the potentially higher rate of return is accompanied by increased risk arising from adverse currency fluctuations, which can cause investment volatility and ultimately impact returns,” he said.

Mr Lockhart said not only does investing in Australian assets remove foreign exchange risk from the equation, but investors were also protected by Australia’s strong corporate insolvency laws.

“Australian law is focused on giving priority to the interests of creditors, especially secured lenders, in comparison to other developed nations such as the US and UK, which are now perceived to be much more focused on the rights of the debtor company.”

Mr Lockhart said credit markets were now at a point in the cycle where risks were becoming more apparent.

“Over the past 10 years businesses across the globe have loaded up on debt, credit quality is deteriorating and compensation for credit risk has declined as yields have collapsed. In short, global credit investors now face a lot more risk, for a lot less return,” he said.

Investors seeking capital stability and reliable income should aim for diversification, he added.

“While corporate loss rates in Australia are low, diversified funds help to manage downside risks by spreading funding across a range of sectors, risk profiles and investment terms.  So do your homework before undertaking any investment and remember – if it seems too good to be true, it probably is.”

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