Michael Korber

A combination of diversification across issuers, industries, asset type, credit quality, maturities and countries remains crucial given credit markets will continue to face a challenging environment with tightening financial conditions, according to Perpetual’s Managing Director, Credit & Fixed Income, Michael Korber.

“The recent events involving the US regional banking sector was just a further headwind in a market environment already facing up to a spike in inflation and lower economic growth.

“All of these headwinds lead to liquidity pressures in financial markets, making it harder to borrow money in the short term, but also raising refinancing risks for even good borrowers over the next couple of years.

“I think we are going to have a tighter, more challenging environment going forward, but it’s also an environment that creates real opportunities for quality investors.

“At the same time, the rising interest rate environment provides the potential for rising income and distributions in a floating rate portfolio which can contribute significantly to returns.”

Mr Korber manages the Perpetual Credit Income Trust (ASX: PCI) which aims to provide monthly income by investing in a diversified pool of credit and fixed income assets. Perpetual has a long history in investing in credit and fixed income and specialises in Australian corporate credit given its local presence, ability to meet borrowers and manage credit risk for the portfolio.

Focus on diversification

“Diversification is not just about having a large number of issuers or different types of credit quality. It’s also important to spread the risk in portfolios across a variety of sectors, industries and asset types such as bonds, RMBS/ABS and corporate loans.

“In challenging environments it’s important to be unconstrained and maintain the ability to invest broadly across the fixed income universe,” said Mr Korber.

As at 31 March 2023, PCI holds 130 assets across 91 issuers with 40.0% investment grade, 54.8% high yield (sub investment grade and unrated) and 5.2% cash.

Michael Murphy, Perpetual Senior High Yield Analyst and Portfolio Manager of the Perpetual Loan Fund, highlighted the importance of fundamental research when identifying quality issuers.

“In terms of what we look for in the portfolio, the borrowers are typically large corporates with a strong market position, significant economic moats and high recurring revenues that are resilient to economic downturns.

“We have very little exposure to consumer discretionary companies, and we also seek to avoid  exposure to property development, which is more dependent on economic cycles, and we’re mindful that many investors are already heavily weighted to the property sector with their own direct investments.”

Corporate loans and other high yield assets can also offer higher yields than other fixed income assets. Due to Perpetual’s size and market position, PCI can offer access to these credit and fixed income assets not typically available to individual investors.

“Our continued focus on maintaining a healthy running income and diversification positions us well looking ahead and the market volatility will continue to provide some attractively priced fixed income opportunities to generate returns for the portfolio,” said Mr Murphy.

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Michael Korber

Perpetual Limited (Perpetual) yesterday announced the opening of the initial public offering (the Offer) for the Perpetual Credit Income Trust3 (proposed ASX Code: PCI) (PCI). It is intended PCI will hold a diversified and actively managed portfolio of credit and fixed income assets.

The Offer has received strong initial support, with indicative bids already surpassing its minimum raise of $150 million, and there is expected to be solid ongoing demand.

PCI is intended to provide individual investors with access to credit and  fixed income assets they can’t typically source themselves. It has an accessible minimum application amount of $2,200.

It is intended PCI’s portfolio will typically contain between 50-100 domestic and global credit and fixed income assets, diversified by asset type, credit quality, loan maturity, country and issuer. Typical investments will include corporate bonds, floating rate notes, securitised assets and private debt (mainly corporate loans). The management cost is expected to be 0.88% per annum of the Net Tangible Assets (NTA) of PCI.

PCI is a registered managed investment scheme. The responsible entity of PCI will be Perpetual Trust Services Limited (Responsible Entity), and the investment manager of PCI will be Perpetual Investment Management Limited (Perpetual Investments).

PCI’s portfolio will be managed by Michael Korber, Perpetual Investments’ Head of Credit and Fixed Income. Michael has over 37 years’ experience, having been involved in credit markets since their development in Australia during the 1990s. He will be supported by Anne Moal, who brings 22 years of experience in credit and fixed income markets, along with a specialist credit and fixed income team that manages more than $7.1 billion in funds under management in credit and fixed income (as at 31 December 2018).

Portfolio Manager Michael Korber said: “The new Perpetual Credit Income Trust is coming at a time when Australia’s retirement age population is growing and looking to meet their income needs in ways diversified beyond their traditional sources of investment income like property and term deposits.

“On a global scale, Australians have one of the lowest allocations to fixed income assets in the OECD.4 Generally, individual investors may find it difficult to create a diversified portfolio of fixed income assets because some of them are typically issued into wholesale or institutional markets,” Mr Korber added.

Perpetual’s Chief Executive Officer and Managing Director, Rob Adams, said: “As a defensive asset class, credit and fixed income should form the bedrock of an investor’s portfolio.”

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Michael Korber

The Perpetual Pure Credit Alpha Fund (Fund) has received a ratings upgrade to ‘Recommended’^[1] from Zenith Investment Partners (Zenith) in recognition of its strong strategy and experienced team^[2],^[3].

Zenith’s confidence is underpinned by the team’s expertise and strong leadership under Perpetual Investment’s Head of Credit & Fixed Income, Michael Korber. Zenith considers Mr Korber to be one of the more experienced fund managers in the credit space.

As at 31 April 2017, the Perpetual Pure Credit Alpha Fund returned 7.52% p.a. (after fees) exceeding the RBA Cash Rate benchmark of 2.46% p.a. since inception^[4]. The fund aims to outperform the Cash Rate by 3% p.a. to 5% p.a. over rolling three-year periods.

The Fund leverages Perpetual’s 20 years of success in active asset allocation, and is managed by a six-person investment team with an average of 20 years’ industry experience.

“Credit continues to play a key role in an investment portfolio regardless of the market environment, but particularly for those investors seeking diversification and income generation,” Mr Korber said.

The Fund utilises a flexible barbell approach combining investment grade credit with high yielding securities, allowing the team to use a number of strategies in response to market changes and capitalise on opportunities in the physical and synthetic markets.

“Our unique Core/Plus strategy for the Pure Credit Alpha Fund allows investors to access higher returns with managed risk.”

“The inclusion of high yield products in the portfolio, including leveraged loans, sub-investment grade bonds and asset backed securities, drives returns through the market cycle. At the same time, the Core assets underpin the Fund’s capital stability.”

“In a low return environment, using a pure credit alpha approach provides the income investors are looking for while focusing on capital preservation,” Mr Korber said.

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The new credit analyst position has been created to support the growing capability of the team which currently manages $5.2 billion in fixed income assets (as at 31 December 2013).

Ms Moal brings to Perpetual Investments more than 15 years’ experience in analytical, research and origination roles within the credit and fixed income market. She joins the team from the Global Markets division of Deutsche Bank where she spent 10 years, most recently as a Director focusing on origination and underwriting of sub-investment grade debt.

Michael Korber, Head of Credit and Fixed Income, Perpetual Investments, said Ms Moal’s extensive experience will complement and broaden the team’s credit specialist capability.

“We are delighted to welcome Anne to the team,” Mr Korber said.

“Anne has a wealth of experience in credit markets and having a team member 100 per cent research focussed will allow us to broaden our coverage of securities. Furthermore, with Anne joining us we will be exploring a range of higher yielding income and investment grade opportunities.

“Net inflows into the credit and fixed income funds have been accelerating, which has provided us with an opportunity to recruit skilled individuals such as Anne to add to the team’s overall capability.”

Ms Moal holds a Master in Management from Rouen Business School (France) majoring in finance and is a graduate of the Australian Institute of Company Directors. Prior to her tenure at Deutsche Bank, she also held roles with Bankers Trust International, Banque Nationale de Paris and Credit Lyonnais in London.

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