Private debt boom reaches the ASX

Fund manager MA Financial has been first out of the gate in 2025 with a new private debt listed investment trust (LIT), the first of several expected to launch in coming months to capitalise on increasing demand for the asset class.

MA Financial announced on January 20 that it had secured $171 million in cornerstone commitments for the MA Credit Income Trust (ASX: MA1) ahead of an expected ASX listing on Wednesday, 5 March.

Realm Investment House is also raising up to $300 million for its new Dominion Income Trust (ASX: DN1).

The two new funds follow the launch in September last year of the Metrics Real Estate Multi-Strategy Fund (ASX: MRE), which offers exposure to both private commercial real estate debt and private commercial real estate equity investments.

The new products reflect a continued global trend for private market assets to be included in the portfolios of investors ranging from pension funds to sophisticated investors and, increasingly, retail investors for whom it may be considered appropriate.

Private debt is also one of the asset classes that some experts tip to benefit from the phased abolition of the local $47 billion bank hybrid security market, an asset class that has long been a favourite of income-hungry retail investors. 

The new LITs provide an opportunity to invest in private debt without the liquidity restraints that can characterise the asset class (by virtue of ASX daily trading) but on the flipside their unit prices are subject to market volatility.

Finer details

Each of the new LITs has a different investment strategy that underpins its risk and reward equation.

The MA Credit Income Trust offers investors exposure to an underlying $3.7 billion portfolio of 165 private credit investments, diversified across lending strategies in which MA Financial has specialist capabilities: direct asset lending, asset backed lending and direct corporate lending. 

It aims to provide investors with consistent monthly distributions with a focus on capital preservation, targeting a pre-tax net return of the RBA cash rate +4.25% per annum over a rolling 12-month period. 

“The fund introduces asset backed lending as what we suggest is a critical component of the investment mix, providing a missing piece for Australian investors, and also what we believe to be the next frontier of private credit globally,” says Frank Danieli, Managing Director and Head of Credit Investments and Lending at MA Financial.

The fund will also have capital management mechanisms to help mitigate the risk of trading at a discount to its net asset value (NAV). This includes quarterly buybacks at NAV for an amount equivalent to 5% of the fund’s assets under management and on market buy backs.

Realm’s Dominion Income Trust will invest in a note that targets distributions of the one-month BBSW rate plus a margin of 3.5% per annum net of fees. The note will primarily invest in a portfolio of debt securities, loans, trusts, notes, and bank facilities, and has a maturity date of six years (intended to be called in five years from the issue date). An “embedded equity reserve” aims to act as loss absorption to protect holders.

Broad strategies

Metrics Real Estate Multi-Strategy Fund (ASX: MRE) – which raised more than $300 million at launch – targets a net total return of 10%-12% per annum from a diversified portfolio of private market commercial real estate investments. Its holdings rank from lower risk senior secured first registered mortgage debt through to higher risk and potentially higher returning equity investment.

The new products join other pre-existing LITs on the ASX, including the $2.2 billion Metrics Master Income Trust (ASX: MXT). It targets a net return of the RBA cash rate plus 3.25% per annum and since inception in October 2017 has delivered an excess spread to the RBA cash rate of 4.44% per annum, with income distributions paid monthly. At the time of writing (January 17), the fund’s unit price closed at $2.09, versus its NAV of $2.0075.

Metrics Income Opportunities Trust (ASX: MOT), which launched in April 2019, targets a minimum cash yield of 7% per annum, and distributions are also paid monthly. It seeks to provide investors with potential excess returns from investments in equity and equity-linked investments to achieve the total target return of 8%-10%to 10% per annum, in each case net of fees and expenses.

Another product, the $860 million Gryphon Capital Trust (ASX: GCI), manages a structured credit portfolio consisting primarily of residential mortgage-backed securities and targets an income distribution of the RBA cash rate of 3.5%.

Meanwhile, advisers wanting to add a global flavour to clients’ portfolios could consider Pengana’s Global Private Credit Trust (ASX: PCX) which targets a 7% per annum cash distribution yield (paid monthly) and an opportunity to sell monthly at NAV.

New listed products provide an alternative channel to access private credit – but not all products are the same, so advisers need to do their homework to determine which may be suitable for their clients.

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