(L to R): Bob Sahota and Andrew Chepul

Leading Australian private credit investment manager, Revolution Asset Management (Revolution) and non-bank lender ColCap Financial (ColCap) has announced a strategic partnership designed to expand access to alternative capital sources.

Under the partnership, ColCap acquires a minority 14% shareholding in Revolution, while Channel Capital converts its existing interest into a 25.8% shareholding. Revolution’s investment team retains majority ownership, ensuring continuity of leadership, strategy and alignment of interest with investors.

The partnership brings together two powerhouses in their respective fields, combining ColCap’s deep expertise in mortgage and specialised lending with Revolution’s institutional-grade private credit capabilities across Australia and New Zealand. ColCap currently manages over $19 billion in assets under management, while Revolution oversees more than $3 billion in funds under management.

“This investment reflects our commitment to expanding our diversified and resilient funding platform to support our future growth and strategic ambition,” said ColCap’s Chief Executive Andrew Chepul.

“Revolution’s disciplined credit approach and strong institutional relationships complement our strategic vision and operational strengths in origination, which will add scalable funding diversity as we transition towards a broader asset management focus, less reliant on securitisation funding sources.”

Revolution’s Managing Director Bob Sahota said the partnership marks a milestone for the business as it combines Revolution’s established private credit funds management expertise with ColCap’s strong origination and lending capabilities focusing on high quality lending.

“This strategic investment further diversifies our origination pipeline and deal flow by leveraging ColCap’s established lending platform and track record to expand our access to high quality lending opportunities, enhancing portfolio depth and diversification.”

The partnership enables enhanced origination in institutional grade, Asset-Backed Securities, focusing on mezzanine and senior tranches, whole loans, as well as warehouse facilities. These assets aim to deliver regular income, diversification and capital protection, without exposure to subprime markets.

“Our investment committee, credit discipline, and risk frameworks remain unchanged.  Investors can be confident that portfolio construction, risk management, and investment decision-making processes continue to deliver the consistent quality and performance Revolution is known for.”

ColCap’s Co-Founder and Chief Operating Officer Ilias Pavlopoulos said the move reflects ColCap’s deliberate investment to become a diversified non-bank lender.

“We’re a genuine mortgage origination leader, having spent the last almost 20 years delivering product innovation challenging bank and competing non-bank lenders, providing borrowers with choice and trusted prime mortgage alternatives. We believe now is the right time to leverage strategic investments and expand beyond traditional mortgages to provide broader asset management offerings for professional investors.

As one of Australia’s largest non-bank lenders, with growing global operations, ColCap will continue to look at opportunities for growth through strategic investments and acquisitions in complementary markets.”

Channel Capital Group (Channel) provides institutional-grade non-investment services to Revolution, including operations, client service, distribution, and marketing.

Channel’s Managing Director Glen Holding said the partnership ensures the ongoing strength of Channel’s relationship with Revolution, while also driving significant growth for the business.

“Channel’s focus remains on providing robust governance, operational oversight, and support for Revolution. At the same time, this partnership opens the door to new growth opportunities, enabling the creation of innovative investment solutions powered by ColCap’s proven origination platform.”

Berkshire Global Advisors acted as exclusive corporate advisor to Revolution on this strategic partnership.

Bob Sahota

Revolution Asset Management, one of Australia’s leading specialist private credit investment firms, is pleased to announce that the Revolution Private Credit Income Trust (ASX: REV) (the Trust) has received strong investor interest through its cornerstone offer and broker firm offer with combined bids in excess of $1 billion.

Final offer documents were lodged with the Australian Securities and Investments Commission on 19 August 2025, with units offered at a subscription price of $2.00. Targeting a total raise of $400 million, the Trust’s early momentum highlights both the growing appetite for listed private credit and the confidence investors place in Revolution’s expertise and established investment approach.

The Trust will provide retail investors with listed access to Revolution’s flagship Australian and New Zealand defensive private credit strategy, focused on delivering regular income and capital preservation through a diversified portfolio of senior secured corporate loans, asset backed securities, and commercial real estate loans.

Morgans Financial Limited, E&P Capital Pty Ltd, National Australia Bank Limited, Canaccord Genuity (Australia) Limited and Commonwealth Securities Limited have been engaged to act as Joint Lead Arrangers and Joint Lead Managers. Wilsons Corporate Finance Limited, MST Financial Services Pty Limited and Shaw and Partners Limited have also been engaged to act as Joint Lead Managers.

The underlying investment strategy provides exposure to high quality corporate debt, including senior secured loans to companies such as Colonial First State, Arnott’s and Lumus Imaging, alongside well-structured asset backed loan pools and senior commercial real estate debt. Importantly, the portfolio excludes property development and small business lending, and is managed through a disciplined, institutional-grade credit underwriting process.

The Trust targets a return of RBA cash rate + 4% p.a.* (net of fees), and features a transparent fee structure with a 0.95% management fee, no performance fees, and full pass-through of loan origination fees, ensuring strong alignment with investors.

To address the growing demand for liquidity in private market investments, the Trust will implement quarterly off-market buybacks and retain the ability to purchase units on-market, offering liquidity and flexibility not typically associated with private credit investments.

“The launch of the Trust reflects our commitment to making private credit more accessible through a structure that is transparent, liquid and aligned with investor interests. As confidence in private credit continues to grow as a crucial component of diversified portfolios, this Trust offers investors a compelling solution,” said Bob Sahota, Co-Founder and Chief Investment Officer at Revolution Asset Management.

“The Trust represents the natural evolution of our strategy and a significant milestone in our growth as a specialist private credit manager. We’re encouraged by the strong interest we have received to date.”

Founded in 2018, Revolution Asset Management manages A$3.4 billion (as at 30 June 2025) on behalf of institutional, family office and wholesale investors. The firm is independently owned by its investment team.

At a glance:

• Revolution Private Credit Income Trust (ASX: REV) receives strong investor demand through its cornerstone and broker firm offer with bids exceeding $1 billion, ahead of its ASX listing on 22 September 2025.
• The Trust is targeting a total capital raise of $400 million, with early momentum demonstrating strong appetite for listed private credit.
• Units are being offered at a subscription price of $2.00, with final offer documents lodged with ASIC on 19 August 2025.
• The Trust offers listed access to Revolution’s flagship Australian and New Zealand defensive private credit strategy, investing across senior secured loans, asset backed securities, and commercial real estate loans in high-quality, non-cyclical assets.
• Investor friendly structure: 0.95% management fee, no performance fees, and 100% pass-through of all loan origination fees.
• Managed by an experienced team with proven performance across market cycles.
• Morgans Financial Limited, E&P Capital Pty Ltd, National Australia Bank Limited, Canaccord Genuity (Australia) Limited and Commonwealth Securities Limited have been engaged to act as Joint Lead Arrangers and Joint Lead Managers. Wilsons Corporate Finance Limited, MST Financial Services Pty Limited and Shaw and Partners Limited have also been engaged to act as Joint Lead Managers.

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Bob Sahota

Revolution Asset Management, one of Australia’s leading specialist private credit investment firms, is pleased to announce that the Revolution Private Credit Income Trust (ASX: REV) (the Trust) has received strong investor interest through its cornerstone offer and broker firm offer with combined bids in excess of $1 billion.

Final offer documents were lodged with the Australian Securities and Investments Commission on 19 August 2025, with units offered at a subscription price of $2.00. Targeting a total raise of $400 million, the Trust’s early momentum highlights both the growing appetite for listed private credit and the confidence investors place in Revolution’s expertise and established investment approach.

The Trust will provide retail investors with listed access to Revolution’s flagship Australian and New Zealand defensive private credit strategy, focused on delivering regular income and capital preservation through a diversified portfolio of senior secured corporate loans, asset backed securities, and commercial real estate loans.

Morgans Financial Limited, E&P Capital Pty Ltd, National Australia Bank Limited, Canaccord Genuity (Australia) Limited and Commonwealth Securities Limited have been engaged to act as Joint Lead Arrangers and Joint Lead Managers. Wilsons Corporate Finance Limited, MST Financial Services Pty Limited and Shaw and Partners Limited have also been engaged to act as Joint Lead Managers.

The underlying investment strategy provides exposure to high quality corporate debt, including senior secured loans to companies such as Colonial First State, Arnott’s and Lumus Imaging, alongside well-structured asset backed loan pools and senior commercial real estate debt. Importantly, the portfolio excludes property development and small business lending, and is managed through a disciplined, institutional-grade credit underwriting process.

The Trust targets a return of RBA cash rate + 4% p.a.* (net of fees), and features a transparent fee structure with a 0.95% management fee, no performance fees, and full pass-through of loan origination fees, ensuring strong alignment with investors.

To address the growing demand for liquidity in private market investments, the Trust will implement quarterly off-market buybacks and retain the ability to purchase units on-market, offering liquidity and flexibility not typically associated with private credit investments.

“The launch of the Trust reflects our commitment to making private credit more accessible through a structure that is transparent, liquid and aligned with investor interests. As confidence in private credit continues to grow as a crucial component of diversified portfolios, this Trust offers investors a compelling solution,” said Bob Sahota, Co-Founder and Chief Investment Officer at Revolution Asset Management.

“The Trust represents the natural evolution of our strategy and a significant milestone in our growth as a specialist private credit manager. We’re encouraged by the strong interest we have received to date.”

Founded in 2018, Revolution Asset Management manages A$3.4 billion (as at 30 June 2025) on behalf of institutional, family office and wholesale investors. The firm is independently owned by its investment team.

At a glance:

• Revolution Private Credit Income Trust (ASX: REV) receives strong investor demand through its cornerstone and broker firm offer with bids exceeding $1 billion, ahead of its ASX listing on 22 September 2025.
• The Trust is targeting a total capital raise of $400 million, with early momentum demonstrating strong appetite for listed private credit.
• Units are being offered at a subscription price of $2.00, with final offer documents lodged with ASIC on 19 August 2025.
• The Trust offers listed access to Revolution’s flagship Australian and New Zealand defensive private credit strategy, investing across senior secured loans, asset backed securities, and commercial real estate loans in high-quality, non-cyclical assets.
• Investor friendly structure: 0.95% management fee, no performance fees, and 100% pass-through of all loan origination fees.
• Managed by an experienced team with proven performance across market cycles.
• Morgans Financial Limited, E&P Capital Pty Ltd, National Australia Bank Limited, Canaccord Genuity (Australia) Limited and Commonwealth Securities Limited have been engaged to act as Joint Lead Arrangers and Joint Lead Managers. Wilsons Corporate Finance Limited, MST Financial Services Pty Limited and Shaw and Partners Limited have also been engaged to act as Joint Lead Managers.

The post Revolution’s Private Credit Income Trust attracts strong investor interest ahead of ASX lsting appeared first on AdviserVoice.

Bob Sahota

Revolution Asset Management, a leading specialist Australian and New Zealand Private Debt investment manager, is pleased to announce the establishment of the Revolution Private Debt PIE Fund (NZD), opening opportunities for institutional and wholesale investors in New Zealand to participate in its flagship Australian and New Zealand defensive private debt strategy.

The Revolution Private Debt PIE Fund (NZD) is specifically designed to provide New Zealand investors access to private debt investments, focusing on the most compelling relative value loans within the Australian and New Zealand private debt sectors. This includes private corporate loans, real estate debt (no construction or development), and asset backed securities.

The fund adopts an open-ended structure with a semi-liquid feature, fully hedged to New Zealand dollars to manage currency fluctuations. It targets an annual return of the RBNZ Official Cash Rate plus 4% to 5% p.a. (after fees and before tax), primarily through its exposure to the Revolution Private Debt Fund II.

Established in December 2019, the Revolution Private Debt Fund II aims to deliver risk-adjusted returns while prioritising capital preservation. It has consistently outperformed its target return since its inception, with an active net return above the RBA cash rate of 5.15% p.a. as of 29 February 2024.

Chief Investment Officer, Bob Sahota said, “Since the inception of our first fund in 2018, we’ve been actively involved in the New Zealand private debt markets, supporting high-quality businesses with strong market share and stable demand drivers. We’ve also supported asset backed securities alongside well-capitalised consumer finance lenders with conservative lending policies. With growing interest in private debt among New Zealand investors, we’re excited to extend our reach into this market, offering local access to our flagship Australian and New Zealand private debt strategy.”

Mr. Sahota further explained, “We currently have over A$300m invested in New Zealand, which is around 14% of our A$2.2 billion flagship fund. The smaller size of the New Zealand market poses challenges for local investment strategies, mainly due to its focus on volatile sectors such as agriculture and forestry. The fund presents an opportunity for New Zealand investors to balance the need for local support of New Zealand private industry with access to a broader investment universe, more robust deal flow and overall diversification via the Australian private debt markets.”

As at 29 February 2024, Revolution Asset Management has committed capital exceeding A$2.7 billion across its private debt portfolio, sourced from a diverse blend of institutional, family office, and wholesale investors.

Pratik Joshi brings a great deal of experience to Revolution Asset Management, having most recently served in a sell side front office credit role as Vice President – Asset Backed Securities at Bank of America, N.A. in Sydney. In this role, he managed a substantial asset backed securitisation portfolio across asset classes. Pratik’s professional journey has provided him with in-depth expertise in origination, structuring, credit analysis, risk management and distribution of Asset Backed Securities and Residential Mortgage Backed Securities.

Prior to his tenure at Bank of America, Pratik spent close to four years within the Structured Finance Group at Moody’s Investor Services as Lead Analyst, and Business Head of Moody’s Analytics. Before that, his career encompassed various front office origination roles at HSBC Bank Australia in Project Financing, L&T Infrastructure Finance in Debt Capital Markets, and Yes Bank Limited in Institutional Banking.

Pratik holds esteemed qualifications, including the Chartered Financial Analyst (CFA), USA charter, Chartered Alternative Investment Analyst (CAIA), USA charter, and an MBA from the Indian Institute of Management, Mumbai.

“We are delighted to welcome Pratik to the Revolution Asset Management team,” said Chief Investment Officer, Bob Sahota at Revolution Asset Management. “His extensive experience and impressive track record in private debt portfolio management and deal origination make him an ideal addition to our firm, as we continue to serve our clients and expand our footprint in Australia and New Zealand.”

Portfolio Manager, Pratik Joshi said, “I am very excited to take on this role which allows me to put my knowledge and extensive deal experience across structured and corporate finance to work. Senior secured private debt is an exciting investment opportunity that offers investors enhanced capital stability and diversification, and I look forward to being part of a trusted team committed to delivering value for our investors throughout the entire credit cycle.”

In October 2022, Vicki Hartley and Bill Entwistle assumed roles as Non-Executive Directors on the Board of Revolution Asset Management.

As of 30 September 2023, committed capital exceeds A$2.6 billion across its two private debt strategies, sourced from a blend of institutional, family office, and wholesale investors. The Revolution Private Debt Fund II, currently open for investment, has a total fund size of A$1.9 billion, delivering a portfolio yield of 10.0%. The portfolio targets a return of cash plus 4% to 5% p.a. (net of fees and expenses) and aims to achieve this return with low volatility and with the benefit of having security over the underlying assets.

(L to R): David Saija, Bob Sahota, Simon Petris 

UniSuper, one of Australia’s largest super funds with more than 620,000 members and over A$115 billion in funds under management has appointed specialist private debt manager, Revolution Asset Management to manage an Australian and New Zealand private debt portfolio.

The separately managed portfolio managed by Revolution Asset Management has been steadily deploying capital into senior secured Australian and New Zealand private debt since its establishment earlier this year.

As a specialist private debt manager, Revolution Asset Management seeks to provide stable income from senior secured loans with the most compelling relative value across corporate leveraged loans, private asset backed securities, and real estate loans (excluding construction or development). The strategy is tracking above its target return of cash plus 4% to 5% p.a. (net of fees and expenses) and aims to achieve this return with low volatility.

Commenting on the mandate win, Chief Investment Officer, Bob Sahota said: “I am delighted on behalf of the team at Revolution Asset Management to have been appointed by a super fund that has a long and proud history of managing the retirement savings for generations of Australians. Private debt has been an important component of institutional and wealth portfolios, and in the current uncertain environment can help to further diversify risk and deliver stable income. We look forward to a long and mutually beneficial relationship that will grow over the coming years.”

Revolution Asset Management’s focus has been on lending to companies that occupy market leading positions, with high barriers to entry and transparent cashflows, which sustain through the market cycle in leveraged buyout senior secured lending. In Asset Backed Securities, the focus has been on the more established non-bank lenders that have scale and access to both debt and equity capital if required. Moreover, the pools of loans that Revolution lends against are focused on prime borrowers with high credit scores. These are loan pools that are expected to perform well even under a recessionary scenario. In real estate lending, Revolution seeks to fund established and stabilised properties in office, retail and industrial sectors with quality tenant cashflow. It is this cashflow that is assessed for debt serviceability and repayment, rather than merely relying on a forward view of valuations.

Revolution Asset Management has raised in excess of A$2.5 billion from institutional, family office and wholesale investors. The Australian and New Zealand Private Debt portfolio was yielding 9.6% (gross return as at 31 March 2023) which is above the stated target of the strategy.

Steve Sutinen and Lucie Bielczykova joined the investment team in February 2021 in newly created roles alongside founders Bob Sahota, Simon Petris and David Saija.

As Portfolio Manager, Steve’s focus is on the Asset Backed Securities portfolio − managing the investment process including origination, due diligence and on-going monitoring of existing transactions. Steve brings strength to Revolution’s ESG policy given prior experience in this field.  As Associate Portfolio Manager, Lucie will assist in managing senior secured assets including corporate leveraged loans, private asset backed securities and real estate loans.

Steve has held a variety of roles within fixed income markets having spent 21 years at Challenger Financial Services, within the Life Company as well as significant time in the Fixed Income team, most recently as Senior Portfolio Manager responsible for the deployment of over A$1 billion in the alternative debt portfolio which included investments in insurance linked securities, royalty securitisations and aircraft finance, amongst others. He has deep experience covering a broad range of fixed interest investments including investment grade corporate credit, domestic Asset Backed Securities, offshore Asset Backed Securities, and private debt. Before joining the investment team at Revolution, Steve held the role of Senior Relationship Manager at Bluestone APAC, responsible for managing a significant third party servicing contract for a A$7 billion mortgage portfolio.

Lucie joins Revolution from JANA, a leading asset consultant, where she was focused on fixed income research, portfolio construction and investment strategy advice for a range of Australian and New Zealand institutional clients. Lucie has also held the role of fixed income Portfolio Analyst at Challenger Limited, and began her career at Kapstream Capital, working alongside Bob Sahota and David Saija. Lucie is studying towards becoming Chartered Financial Analyst (CFA) charterholder and has completed her CFA Level 1 and 2 exams in which she ranked above the 90th percentile of candidates globally.

Chief Investment Officer at Revolution Asset Management, Bob Sahota, said “Steve and Lucie are investment professionals of the highest calibre with extensive experience in private debt portfolio management and deal origination, structuring and analysis. They will be invaluable in driving investment performance and delivering on our portfolio objectives.  We look forward to continuing to cultivate our business by building strong, trusted relationships with our investors and growing our footprint both domestically and in New Zealand.”

Revolution Asset Management’s investment funds include predominantly senior secured assets such as corporate leveraged loans, private asset backed securities and real estate loans, that benefit from having security and structural protections such as loan covenants. Having established the firm three years ago, Revolution Asset Management manages two strategies on behalf of institutional and wholesale investors, with its second fund, Revolution Private Debt Fund II approaching A$400m in committed capital with 90% of this capital deployed since it launched in December 2019. Overall, Revolution Asset Management has invested in excess of A$850 million on behalf of its funds and institutional clients (as at 31 December 2021).

Bob Sahota

Specialist Australian and New Zealand Private Debt investment manager Revolution Asset Management (Revolution) has been awarded a mandate to originate and manage Australian and New Zealand Private Debt from leading investment manager QIC, through a co-investment relationship.

As with its existing co-investment arrangements, the firm will lead the origination of new transactions and provide full credit analysis and structuring of private credit opportunities alongside its other funds. This approach allows institutional investors to access Australian and New Zealand private markets where it is otherwise difficult to do so, with the benefit of Revolution’s extensive sponsor relationships, strong experience and extensive track record in managing Australian and New Zealand private debt. The additional capital to flow into private debt markets is a welcome development for sponsors in their financing requirements from long term, patient ‘buy and hold’ investors.

CIO at Revolution, Bob Sahota, said: “The trend towards private credit investment continues as Australian and New Zealand institutional and wholesale investors seek out reliable and defensive income in a backdrop of poor global growth, low inflation and falling yields. Large investors are repositioning their portfolios for defence in this highly uncertain environment, and the qualities of Australian and New Zealand private debt offer patient investors with an appealing solution.”

Revolution’s investment funds include predominantly senior secured assets such as corporate leveraged loans, private asset backed securities (ABS) and real estate loans, that benefit from having security and structural protections such as loan covenants. The limited liquidity structure of Revolution’s funds mean the firm avoids any forced selling of assets and its strategy deliberately avoids pro-cyclical industries.

“In terms of deal flow, what we have witnessed over the last two to three months is that the market for secondary transactions is providing the opportunity to participate in high quality transactions at a significant discount to the original face value of loans and ABS securities. The effect of this is that we are able purchase the same assets that we know extremely well (that we’ve invested in our first fund) but buying at a much more opportunistic level, and have our co-investors participate. Sellers are forced to liquidate otherwise performing assets, as a result of having to raise liquidity to meet redemptions in their own funds.  This has been the key focus of what we’ve been able to achieve while the primary market’s been somewhat subdued.” said Mr Sahota.

Having established the firm just over two years ago, Revolution launched its second fund in December 2019 with an open-ended structure that has already surpassed A$200m in committed capital with 86% of this capital deployed. Overall Revolution has invested in excess of A$550m on behalf of its funds and institutional clients with a further A$500m in available capital to deploy (as at 31 August 2020).

Bob Sahota

In today’s credit market environment, marked by extreme volatility and uncertainty, Bob Sahota, Managing Director and Chief Investment Officer at Revolution Asset Management provides an overview of the private debt market and the role of non-correlated investment risks to patient long term investors.

Defensive, capital-protected, private debt is becoming increasingly appealing to investors as a viable asset class as markets work through the impacts of the COVID-19 pandemic.

There are a number of reasons for this. Unlike many assets, this strategy generates income through market cycles. It can provide diversification away from the publicly listed, big-four Australian banks and broader market movements.

Until very recently, bank stocks were considered pseudo-debt proxies due to their healthy and reliable dividends. But the COVID-19 crisis has seen many banks dramatically reduce or totally cut their pay outs. This has allowed them to accommodate the mortgage payment deferrals the Federal Government has encouraged banks to give borrowers. Their reduced distribution makes banks far less appealing to investors looking for regular income. Private debt can fill this gap.

Finally, senior debt is especially attractive when economic conditions worsen given its credit profile and position at the top of the capital structure.

M&A activity expected to be slower

While the current pandemic took investors by surprise, the local market had been due for a correction. Until February 2020, when the ASX 200 reached an all time high of 7199.79 points, Australia was enjoying a 28-year bull market. Financial services notwithstanding, thanks to the mining investment boom even the global financial crisis was fairly benign compared to many other parts of the world. When the crisis hit, Australia was at the last vertebra in the tail of a very long period of economic growth.

The ASX 200 is presently trading at around 5400 points, having come off substantially as a result of the impact COVID-19 has had on markets. Primary transactions have been a casualty of the economic chaos, which is to be expected given M&A activity typically slows down during substantial market dislocations.

Secondary market producing opportunities

It’s a different story in the secondary market, however, where there are many more opportunities. In particular, to raise liquidity to meet redemptions, some asset owners in distress are seeking to jettison high quality debt instruments at substantial discounts.

This is producing very interesting opportunities to buy high quality debt instruments from distressed sellers. Many of these instruments are trading at a significant discount to their face value, in a market with scant liquidity.

Current market conditions mean it’s possible for savvy investors to take up large allocations in these deals. The funds that participate in these transactions have an opportunity to generate substantial risk-adjusted returns over time if they are prepared to hold these assets to maturity.

Importantly, these assets have very different risk/return profiles compared to distressed assets, for instance Virgin Airline’s bonds. Contrastingly, these high-quality loans and private debt instruments are in stable recession proof industries such as consumer staples, infrastructure services and healthcare. So there is significant equity cushion to ensure, even in the event a company experiences some underperformance, debt investors are still able to get their money back at maturity.

Sector perspective

Turning to the fixed interest market more broadly, bonds have an important role to play in a portfolio during turbulent times. But not all debt instruments are created equal.

Illiquid assets such as pure infrastructure can be attractive, especially when equities markets are volatile. They are typically funded through long-dated debts, which are reasonably recession-proof, thanks to stable, transparent, regulated cash flows.

It’s a different story for commercial real estate assets however, which are suffering from restrictions put in place to combat COVID-19. A preference for remote working and reluctance to have big teams in offices could lower demand for commercial office assets. An unknown is what impact the shift to online shopping as a result of COVID-19 will have on shopping centres and, subsequently, the retail commercial property sector.

A note, however, about the scrutiny some superannuation funds have been under, after not marking down illiquid infrastructure and real estate investments. It’s important to make a distinction between equity and debt investors in this scenario.

Equity investors are under more pressure than debt investors to mark down investments if the former’s assets, and their performance, is benchmarked to an index. By contrast, private debt investors’ performance is not benchmarked to an index. Unlike equities, debt instruments continue to pay out coupons no matter how markets perform. So unless the asset or the bond issuer is in distress, there’s no requirement to mark down the asset.

Nevertheless, a conservative approach to risk is appropriate in the current climate and when dealing with debt instruments. The idea is to marry a top down and bottom up view of assumptions when assessing investments.

It’s always important to consider how an asset might perform through a recession. This includes examining what constitutes a sustainable level of leverage, given the underlying business and its key drivers. It’s about being able to demonstrate debt service stability through the cycle.

Looking towards a post-COVID-19 world

It was pleasing how swiftly the Australian Government was prepared to act to combat the pandemic’s effects on the nation, with in excess of $200 billion in economic stimulus currently working its way through the economy. This should substantially soften the blow around unemployment stemming from COVID-19, given the stimulus package has been directed towards people who have been stood down from the forced Government closure across sectors such as retail, tourism and hospitality. These funds should go directly into people’s pockets and back into the real economy. It’s an approach that’s been mirrored around the world.

Australia and New Zealand have weathered the COVID-19 storm well thanks to fiscal stimulus and both nations’ willingness to act early to combat the spread of the virus. From an investor perspective, this could provoke a focus on domestic versus international assets in the short term.

But long term, the world must embark on economic recovery. This is especially important given all markets rely on global supply chains to operate efficiently.

The longer borders are closed, the more potential damage to our economy, which requires foreign capital inflows. So, it’s important for the whole world to get to the other side of the pandemic. In the meantime, expect more focus on insourcing and more preparedness for crises.

In terms of asset allocation, right now, the market is gripped by fear, which tends to prompt investors to hold a higher percentage of the portfolio in cash. But at some point the market will turn. When this happens, cash will act as a handbrake on performance. Professional investors are paid to make asset allocation decisions, they are not paid to allocate to cash, something clients could do themselves. There’s also very little compensation for being overweight cash.

Throughout the cycle, it’s useful to have non-correlated investment risks across the portfolio. Alternative asset classes such as capital-protected, private debt has a role to play here. Complementing a fixed income portfolio with an allocation to private debt could prove fruitful for investors willing to put the work in researching and understanding the risks and who are prepared to hold assets to maturity.

Bob Sahota

“Investors repositioning risk for a correction due to this late cycle economic environment are turning to less riskier assets like fixed income, however what we see time and again of concern is an over exposure to assets that have higher correlation with equity markets and no protections.

This significantly increases the sequence of return risk that can undermine a seemingly well constructed portfolio.” according to Revolution Asset Management’s CIO and veteran investment manager, Bob Sahota.

Like many alternative investment strategies that have been designed to produce consistent income for investors fixated on yield, private debt (or direct lending) exhibits low correlations to major asset classes. Private debt involves the sourcing and managing of loan portfolios that help to fill the current financing gap created by the long term decline in lending by Australian banks to Australian businesses. It affords investors a number of structural protections through seniority, security and covenants, which combine to mitigate the risk of the investment and likely improve recoveries should the borrower face distress.

“We often get asked where should investors be positioned in this late-cycle phase, quite simply you want to be converting from unsecured to secured assets – from being overweight in unsecured bonds (such as global and domestic high yield and investment grade bonds) where you don’t have security, covenants and protection from cash flow leakage and M&A risk.

We believe it’s a good time to reallocate defensive investment holdings to where you gain access to the benefits of security whilst also receiving a regular income. A key attribute of Australian private debt is that it provides access to contracted income of 4% to 5% over the cash rate through the investment period, for each investment. Should there be a down turn or a major correction in markets given this late expansionary phase, you want to be at the senior secured end of the capital structure.” said Mr Sahota.

As private debt is typically senior with debt holder interests ranking before other creditors, this entitles debt holders to priority payment.  When compared to domestic and offshore high yield, corporate credit and US Leveraged loans and CLOs, Australian private debt offers the most complete package in terms of protection in this late cycle phase.