Australia has a $3 trillion opportunity. Here's how you can profit from it

Private debt is, to put it politely, an opaque part of the credit market. A lack of available data and information about how that debt is distributed across lending platforms makes it hard to know how much risk is in this market - and just as importantly, who holds it. 

In spite of this, private debt is also one of the faster-growing areas of the global credit opportunity. In just a decade, the Australian private debt market has ballooned to a $3 trillion market capitalisation. Its proponents say that it can provide an attractive and stable return even when other asset classes are cancelling dividends, reducing income opportunities, or slashing available interest rates.

One such proponent is Alex Hone, Keyview Founder and Managing Partner. Keyview has just launched its newest private debt fund which will seek to protect investor capital and generate double-digit returns. 

But unlike a lot of other private debt investors who are purely about capital protection, Keyview has an additional lever that they use to generate growth as well as yield. In this edition of Expert Insights, you'll hear about what that lever is. 

Edited Transcript

LW: How would you explain private debt to someone who has never considered it in their investing journey?

Private debt is lending a company, an asset owner, or an individual the money to perform certain business or commercial purposes. That can vary from real estate owners through to industrial companies, basically the broad array of businesses and asset owners that make up the economy. 

Where we focus within that is what we call "opportunistic debt". So it's finding counterparties who have a requirement for capital. We structure it in a senior-secured manner (debt backed by collateral or other assets) so that we're achieving a much more attractive risk-return characteristic for our clients than they would be having their cash just in term deposits, and even than they would just having it in plain vanilla equities.

LW: What are the traits of a great investment and what are the traits of a deal you would generally avoid?

Hone: A good deal for us is one where we have zero chance of losing money. So that comes down to margin of safety. Ultimately, the opposite of that is a deal that we seek to avoid is where we don't have absolute certainty going into the deal that we're going to get a return of our capital and a return on our capital. 

Both things are very, very important. In the history of the business, we're yet to lose money on a single deal and we want to continue that for our investors. Ultimately, the quality of counterparty is a key thing that we consider. The quality of the assets that we're securing, the quality of the cash flow streams, the quality of the management, the quality of the industry. 

And then ultimately, if those things don't stack up in a manner where we have supreme confidence about the counterparty quality, we won't do it. There's an array of examples that might mitigate that. But ultimately, quality for us is the key thing that we're looking for in all circumstances.

LW: How does the new Keyview Credit Opportunities Fund differ from the existing offering?

Hone: At Keyview, we focus on a number of different investment strategies. One of those areas that we focus on is opportunistic debt or credit investment. The new Keyview Credit Opportunities Fund is a continuation of what the team's been doing for many years. 

It's a diversified portfolio of primarily senior-secured investments. It's aiming to generate in this current market environment north of 10% return. That's very consistent with the track record that we've generated for many, many years. It's going to be a diversified portfolio of 30+ investments. We're trying to build an array of different debt investments that, through the market cycle, will generate consistent returns and provide a return on income stream which exceeds equity markets with close to zero volatility for our clients.

LW: How does your process add value for investors?

I talked a moment ago about quality, and our process is assiduous. It's very detailed. It's akin to a private equity company in terms of the full due diligence they would go about in buying an asset or a company. It's very, very detailed in its documentation and it's very, very detailed in its utilisation of consultants and industry specialists in areas to augment our research. And ultimately, the value that's provided through that is a very deep conviction around our counterparties' credit quality and their ongoing viability. 

Such that when we loan them that money, we have a very high degree of confidence that we're going to earn the rate of return that is stipulated in the loan documentation. And that's consistent with the track record the team's had over a very long period of time.

The Keyview Credit Opportunities Fund is currently open for investment and is available for wholesale investors.

Managed Fund

Keyview Credit Opportunities Fund

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For more information or to contact Keyview, please click here.