Boutique asset manager Rixon Capital is the latest entrant in the thriving private credit market, offering “bespoke” deals in the market for A$2 million to $20 million business loans.
Rixon is led by co-founders Patrick William, who is also managing director, and Shrikaanth Balasubramaniam, who is director of credit. Both previously worked at alternative asset manager FC Capital on the private credit side of the business.
Rixon opened its doors this month and will soon close its first fundraising through a wholesale managed fund.
According to EY’s 2021 Australian Private Debt Market Update, the market grew 21 per cent to $133 billion last year and now makes up more than 10 per cent of the overall corporate and business loan market.
EY put the strong growth of the sector down to the appeal of more flexible structures and terms offered by private debt providers, faster turnaround on deals and the sector’s growing capital base.
EY said institutional investors showed an increased appetite for Australian private debt, which has delivered good relative returns, with stable yields and moderate risk.
“Margins have remained relatively constant in comparison to bank and bond markets. This yield stability has helped to attract more investor capital.”
Superannuation funds are establishing their presence in the market. Aware Super established a direct lending team in 2018 and credit accounts for 5 per cent of the fund’s $150 billion of assets.
Speaking at an investor conference earlier this year, Aware Super portfolio manager Mike Cowell said the credit portfolio produces steady income with low volatility. Since aware Super established its own team, direct lending has been the fastest growing area of its credit investing.
William said a number of the investment managers that have entered the private credit market in recent years have moved up into the corporate end of the lending market as they have grown. He said there is a good opportunity in the $2 million to $20 million range.
He said lenders in that end of the market tend to offer generic products. Rixon’s point of difference is that it will “do a lot of work on each deal.” All loans will be originated by the Rixon team.
It will only lend senior secured but is forecasting returns of 10 to 12 per cent a year. William said the high yield is not a risk premium but rather a scarcity premium. He said there is a gap in the market for “non-vanilla” loans in the $2 million to $20 million segment.
He said brokers are looking for lenders who can arrange bespoke finance for borrowers in that range.
Rixon has a loan in documentation that involves setting up a warehouse facility for a fintech receivables finance company. The company will pay an all-in rate of 12.5 per cent on the senior secured facility.
William said Rixon will not lend to property developers and is not keen on consumer discretionary. In the retail sector he likes pharmacies.
“We are particular about the type of business we back. We want them to be slow and steady. And we want borrowers who can start