UniSuper has mandated local fund manager Revolution Asset Management to invest in non-investment grade senior loans in Australia and New Zealand amid tightening credit conditions and higher yields.
The $115 billion super fund is “cautiously optimistic” about the opportunities in private credit according to Robert Hogg, head of fixed interest and macro research at UniSuper.
Investors have seen significant opportunities in public credit markets following last year’s upheaval in the UK gilts market as well as the more recent volatility in the aftermath of the collapse of Silicon Valley Bank, Signature Bank in the US and the bailout of Credit Suisse.
“A number of financial market tensions have thrown up opportunities in the public markets and I would be surprised if these don’t flow into private markets,” Hogg tells Investment Magazine.
The $260 billion AustralianSuper last year mandated US fund manager Churchill Asset Management for an initial US$250 million ($372 million) mandate to invest in senior and unitranche debt in the US middle market.
Non-investment grade loans
Revolution Asset Management will invest in senior secured loans in Australian and New Zealand dollars with an underlying credit rating of B to BB on behalf of UniSuper says Hogg. However, he declined to disclose the size of the mandate.
The fund manager is targeting corporate leveraged loans, private asset backed securities, and real estate loans, excluding construction or development loans that pay an all-in yield of 4-5 per cent over the cash rate after fees and expenses.
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 according to Revolution’s CIO, Bob Sahota.
However portfolio construction is key as economic conditions worsen and it is vital to invest in non-cyclical industries and businesses where the company is a market leader with high barriers to entry from a leveraged buyout perspective.
“As we approach a period of deteriorating economic conditions, Revolution remains confident that its conservative and disciplined approach to portfolio construction will continue to underpin strong performance through the cycle,” Sahota says.