Commercial lender Metrics Credit Partners has launched a new credit fund, which will hold a portfolio of sub-investment grade debt and target a return of 8 to 10 per cent.
Metrics has released a product disclosure statement for the MCP Income Opportunities Trust, seeking A$300 million from retail investors. The trust will be listed on the Australian Securities Exchange.
Metrics has been in the commercial loan market since 2013, backed by institutional and high net worth investors. It has originated 200 loans worth $5.5 billion since then, including corporate loans, property development, project and infrastructure finance and acquisition loans.
It participates in syndicates and club loans and originates on a bilateral basis. And it lends right through the capital structure, including structuring equity returns through warrants and options.
The Income Opportunities Trust is Metrics' second listed trust. In 2017, it launched the MCP Master Income Trust, which has a majority of its funds in investment grade loans and targets and income return of the cash rate plus 3.25 per cent.
Metrics managing partner Andrew Lockhart says that fund has 98 individual loans, has not lost any money and has exceeded its target return consistently. The trust has traded at a premium to its net asset value since listing.
The new fund is targeting income of 7 per cent and some participation in upside gains through exposure to derivatives.
"We are giving investors the opportunity of investing in high yield without the volatility of high-yielding equities," Lockhart says.
"Our view is that the banks are not the natural holders of the loan assets we sell. The capital requirements are too onerous these days and the margins are too low for them.
"We are close to $4 billion of funds under management now and that means we can lend at scale. We lend between $50 million and $100 million on an investment grade loan, and between $25 million and $50 million on a sub-investment grade loan."
If the trust meets its $300 million target the management expense ratio will be 145 basis points. There is also a performance fee of 15 per cent of returns above the cash rate plus 6 per cent.