Specialist fund manager Metrics Credit Partners has launched a listed investment trust (LIT) aimed at providing investors, including SMSF members, access to a portfolio of private credit assets to generate yield.
According to Metrics managing partner Andrew Lockhart, the MCP Income Opportunities Trust (ASX:MOT) has been designed to provide a “means to generate a yield where you’re not exposed to a dilution of returns from investment-grade exposure”.
“So [the portfolio is comprised of] all sub-investment grade and it’s predominantly subordinated debt, mezzanine debt, holdco debt – [all] lower risk then equity but higher risk than investment-grade debt,” he noted.
The new LIT has a target annual return of 8 per cent to 10 per cent net of fees with a cash income distribution of 7 per cent a year that will be distributed quarterly.
Metrics is looking to raise a minimum capital amount of $200 million via MOT and a maximum capital amount of $300 million.
Fees charged on the LIT consist of a management expense ratio of 1.45 per cent a year with a performance fee of 15 per cent applicable only if a high watermark return is achieved.
“That hurdle rate is the RBA (Reserve Bank of Australia) cash rate plus 6 per cent. So we say to investors a minimum target return of 7 per cent per annum with income paid quarterly and based on our high watermark we have to deliver 7.5 per cent before we are able to participate in any performance fees,” Lockhart said.
He noted the new offering was applicable to SMSFs and provides a potential yield solution to replace lost franking credit refunds should Labor’s proposed imputation policy be introduced.
“Self-managed super funds and others wouldn’t have the ability to sit down and negotiate a $30, $40 or $50 million transaction with a borrower and be able to negotiate an interest rate in terms of fees and covenants,” he said.
“[Also] if you think about announced policies about franking credits, we think there will be increased levels of interest as investors look to source alternative yield from franked dividend flows.
“We believe there is strong demand for an investment product that can deliver quarterly cash income with potential to participate in upside gains, without the volatility of listed equity markets, and that’s what we are seeking to deliver with MOT.
“MOT offers exposure to a range of borrowers and private credit investments that are not typically available to retail investors, while keeping a core focus on managing investment risks.”
The initial offer opens today and is expected to close on 12 April.