Funds Rating by IIR - full report is also available on www.independentresearch.com.au
OVERVIEW
The iPartners Investment Fund (“the Fund”) was established as a wholesale unit trust on 6
March 2020. The Fund is managed by iPartners Funds Management Pty Ltd (“iPartners’” or
“the Manager”). The Fund provides exposure to a diversified portfolio of private credit, asset
backed debt, property debt and private credit funds. All loans are secured against a portfolio
of loans, receivables or cashflows. The target portfolio allocation is Private credit: 0-40%;
Asset backed debt (ABS): 0-40%; Property: 0-40%. As a 30 November 2020, the portfolio
split 44% in property, 40% ABS, 11% private credit and 5% in cash. The average loan
maturity is a relatively short 12-24 months. The Fund aims to pay distributions on a quarterly
basis. The Fund is designed to produce an annual yield of around 8% to 10% (net of fees
and costs) measured over the investment horizon with a low degree of volatility. While the
track record is limited to data, the Fund has delivered a 10.07% annualised return since its
inception, net of all fees.
INVESTOR SUITABILITY
IIR has for some time now viewed Australian private debt as offering one of the most
attractive risk-adjusted returns profiles. It is also one of the few asset classes where the
skillset of the manager can actually demonstrate the ability to ‘preserve investor capital’.
The Fund is one of the more attractive propositions this analyst has seen in the asset class. In
essence, we believe it is very well positioned to capitalise on the private debt premia, which
compromises three components: 1) an illiquidity premium; 2) a complexity premium; and,
3) and a supply / demand premium. A premium is not earned until a loan is repaid - i.e., risk
mananagement to mitigate defaults and loss-given-defaults (LGDs) is critical. It is here where
we believes the Manager excels in the smaller end of the private debt market it plays in. In
short, on a pound-for-pound basis, we believe the Fund delivers a compelling risk-adjusted
returns value proposition. More broadly, the iPartners platform provides investors single
loan opportunities as well (many of which are folded into the Fund), providing investors the
opportunity to dial up / down overall risk / return in relation to a larger portfolio investment. At
the lower end of the 8-10% target, the 8% level is there to factor in any cash dilution risk. This
potential issue is well-managed. In short, we would expect the Fund to continue to deliver in
the circa 10% net return range.
RECOMMENDATION
IIR ascribes a “RECOMMENDED PLUS” rating to the Fund. The basis for the rating is partly
described above. The Manager’s ability to extract the premia is based on 1) its expertise in
structured finance ABS, with various structural protections in place to mitigate risk in addition
to careful borrower selction and, 2) careful co-investor best-of-breed selection for its CRE
and business private debt strategies. We talk about an illiquidity premium in private debt.
While IIR believes this tends to be overstated, it certainly does exist (the leveraged loans
market vs private broadly syndication loan (BSL) / club syndication private deals quantifies
the premium). What is attractive in the Fund is that while this is earned, investors have
monthly liquidity. The right private debt strategy with the right manager is a ‘no brainer’ in
IIR’s view. We do not believe the fundamental of this market in Australia will deteriorate over
the foreseeable future. In contrast, investors are well aware of near zero returns on TDs and
the impact on equities dividends over 2020 (noting the outlook has improved markedly more
recently). Finally, returns to investors are always net of fees to state the obvious. At an all-in
60bps, the Fund is very sharply priced. While exogenous to this review and Fund, we would
ultimately encourage iPartners to launch a structured finance ABS specific strategy some
Sign up for free to access
Get access to the latest equity research in real-time from 12 commissioned providers.
Get access to the latest equity research in real-time from 12 commissioned providers.
iPartners Investment Fund
- Published:
02 Mar 2021 -
Author:
Independent Research -
Pages:
16
Funds Rating by IIR - full report is also available on www.independentresearch.com.au
OVERVIEW
The iPartners Investment Fund (“the Fund”) was established as a wholesale unit trust on 6
March 2020. The Fund is managed by iPartners Funds Management Pty Ltd (“iPartners’” or
“the Manager”). The Fund provides exposure to a diversified portfolio of private credit, asset
backed debt, property debt and private credit funds. All loans are secured against a portfolio
of loans, receivables or cashflows. The target portfolio allocation is Private credit: 0-40%;
Asset backed debt (ABS): 0-40%; Property: 0-40%. As a 30 November 2020, the portfolio
split 44% in property, 40% ABS, 11% private credit and 5% in cash. The average loan
maturity is a relatively short 12-24 months. The Fund aims to pay distributions on a quarterly
basis. The Fund is designed to produce an annual yield of around 8% to 10% (net of fees
and costs) measured over the investment horizon with a low degree of volatility. While the
track record is limited to data, the Fund has delivered a 10.07% annualised return since its
inception, net of all fees.
INVESTOR SUITABILITY
IIR has for some time now viewed Australian private debt as offering one of the most
attractive risk-adjusted returns profiles. It is also one of the few asset classes where the
skillset of the manager can actually demonstrate the ability to ‘preserve investor capital’.
The Fund is one of the more attractive propositions this analyst has seen in the asset class. In
essence, we believe it is very well positioned to capitalise on the private debt premia, which
compromises three components: 1) an illiquidity premium; 2) a complexity premium; and,
3) and a supply / demand premium. A premium is not earned until a loan is repaid - i.e., risk
mananagement to mitigate defaults and loss-given-defaults (LGDs) is critical. It is here where
we believes the Manager excels in the smaller end of the private debt market it plays in. In
short, on a pound-for-pound basis, we believe the Fund delivers a compelling risk-adjusted
returns value proposition. More broadly, the iPartners platform provides investors single
loan opportunities as well (many of which are folded into the Fund), providing investors the
opportunity to dial up / down overall risk / return in relation to a larger portfolio investment. At
the lower end of the 8-10% target, the 8% level is there to factor in any cash dilution risk. This
potential issue is well-managed. In short, we would expect the Fund to continue to deliver in
the circa 10% net return range.
RECOMMENDATION
IIR ascribes a “RECOMMENDED PLUS” rating to the Fund. The basis for the rating is partly
described above. The Manager’s ability to extract the premia is based on 1) its expertise in
structured finance ABS, with various structural protections in place to mitigate risk in addition
to careful borrower selction and, 2) careful co-investor best-of-breed selection for its CRE
and business private debt strategies. We talk about an illiquidity premium in private debt.
While IIR believes this tends to be overstated, it certainly does exist (the leveraged loans
market vs private broadly syndication loan (BSL) / club syndication private deals quantifies
the premium). What is attractive in the Fund is that while this is earned, investors have
monthly liquidity. The right private debt strategy with the right manager is a ‘no brainer’ in
IIR’s view. We do not believe the fundamental of this market in Australia will deteriorate over
the foreseeable future. In contrast, investors are well aware of near zero returns on TDs and
the impact on equities dividends over 2020 (noting the outlook has improved markedly more
recently). Finally, returns to investors are always net of fees to state the obvious. At an all-in
60bps, the Fund is very sharply priced. While exogenous to this review and Fund, we would
ultimately encourage iPartners to launch a structured finance ABS specific strategy some