Generating attractive and reliable monthly returns from the world of global private credit

Our next speaker is Dean Winebrain.

Dean is an Executive Director of Pangana Capital Group and the Managing Executive of Term Plus, Pangana's fixed-term global private credit platform.

Today, he'll be talking about generating attractive and reliable monthly returns from the world of global private credit.

Welcome to the presentation, Dean.

Thanks, Angelina.

And hi, everyone.

Thank you for joining in and dialing in today.

We've had a lot of interest through the investment markets audience on Term Plus, particularly those interested in fixed income investing.

If you haven't heard of TermPlus, TermPlus is a range of high-yield fixed-term accounts delivering monthly income that's generated through access to global private credit markets.

So a quick disclaimer slide, I am going to talk quickly on this call.

There's a lot to cover in just the 12 minutes that I've been allocated.

Please note this presentation is general information only, not financial advice.

There's a lot more detail on Termplus features and how it works available on our website, as well as the PDFs and TMDs for Termplus.

So perhaps just to start very quickly and put this presentation into context before I get into the nuts and bolts of how it all works.

Here are the current target rates that Term Plus offers across three different time periods.

Specifically, you'll see that our monthly income is intentionally set up with the aim of delivering a fixed margin above the variable RBA cash rate.

So what I want to do today is offer a quick deep dive into how Term Plus actually goes about delivering these returns by using global private credit as an engine for income investing.

If you're listening to this call, maybe you already invest in Australian private credit, or perhaps you're a holder of bank hybrids or bonds or some other income instrument.

But just to set the scene, global private credit is widely considered as the world's fastest growing asset class, attracting investors looking for stable risk adjusted returns in the fixed income space.

You don't have to take my word for it, just the Google AI answer that I got when I went over to Google and typed in, what is the world's fastest growing asset class?

I guess this is accumulation of everything Google AI could find.

So what is private credit?

If we take it in its simplest form, you could also refer to it as lending.

More specifically, when we refer to private credit, that would be non-bank lending.

Now, for those watching today that are familiar and even invested in Australian private credit through a number of funds that are available in the market today, in understanding the appeal of global private credit, it does help to have some context as to how this stacks up compared to the Australian private credit sector.

As you can see in the chart here, the Australian markets, in the Australian markets, our banks dominate corporate lending with about 90% market share.

Australian private credit only makes up about 10% of the local lending market.

And that 10% is going to be largely concentrated to the likes of commercial real estate, retail mortgage funds, and property in general, which does mean that investors in Australian private credit are more than likely going to be over concentrated in the property market.

And your return profile is largely dependent on the macro environment for Australia.

In the US and Europe, we see an almost complete inverse makeup of the corporate lending sector, where private lenders makeup a staggering 84% of all corporate loans.

And that's in a significantly larger markets.

The sheer size of the market allows these global private credit lenders to be significantly more diversified.

And that's across across both industry and geography.

and in a very mature market where experienced fund managers have 20 year plus track records and the global private credit sector has structural tailwinds to growth into the future.

The biggest tailwind to the sector is increasing demand for corporate capital for things like expansion, acquisition, perhaps new growth projects, and also not enough supply of capital due to the continued regulations that are being placed on US and European banks that we've seen come into play since the GFC.

We do have a long webinar available on the Term Plus website that tracks the whole storyline for the growth of the global private credit sector.

We don't have time for that today.

But in summary, with the banks exiting the corporate lending space due to ever-growing burdens of regulation that are placed on them to operate in these lending markets, global non-bank lending has grown and continues to grow significantly, as you can see on the chart here over the last 15 or so years.

Again, you know, I'm conscious that we've got limited time.

And so without getting into the nitty gritty, because, you know, I just want to give you a high level today.

The growth that we've seen in global private credit has been largely due to the historical track record of resilience that global private credit as an asset class has shown versus other fixed income asset classes across economic environments.

What we're showing here in the chart, the blue bar shows the annualized return over the last 10 years.

The orange bar shows the volatility over the last 10 years.

US private credit is on the far right hand side.

And here you can really see the risk profile that I'm referring to.

Even in comparison to equities, which we've added on the left-hand side, you know, reflected by the S&P 500, in terms of the trade-off of return versus volatility, global private credit is a very attractive asset class.

The volume and momentum behind global private credit is also attributable to the tailwinds that are underpinning the sector and the massive opportunity that still lies ahead.

You can see here the allocation to private credit across geographies dating back the last 25 years.

The market is dominated by the US, followed by Europe and the rest of the world is all but out the picture due to the different market dynamics that you have in these different markets.

Fun facts, if you look at the Australian markets, as I mentioned, you know, banks make up 90% of corporate lending.

If you look at regulation of the Australian market, about 76% of our banking sector is covered by the four big banks.

So if you're a regulator in Australia, and you need to have oversight of this industry, you cover four big banks, and you're able to really cover the sector.

If you look at a geography like the US, in terms of the banking sector there, there are nearly 5,000 different banks in the US alone.

So what you can imagine is the regulators in that sector, in order to keep it under control, they place much tighter restrictions and make it much harder for banks to play in certain spaces.

And that's what we see has opened up this excellent opportunity for private credit lenders.

But then, if this is so great, why isn't this commonplace investing?

Surely everyone would already be investing in global private credit.

Well, up until now, unless you have been a major institutional investor, that's reflected by that growth chart that I showed you on the last slide.

If you haven't had very deep pockets, global private credit just hasn't been available to you.

To start and to give you an example of some of the barriers you'd have to write an extremely large minimum investment check size just to invest with one of these managers assuming you even had access to invest with the top quartile manager who are in high demand and who you know a manager that has all the credentials and track recording and capabilities.

Even if you did have access you'd want the ability to underwrite and assess each opportunity and allocate your money to the best ones and you'd need that experience and

Once you do invest, your funds would then be locked up for years due to the traditional liquid nature of private credit.

And then you would need to manage things like funding capital, drawdown calendars, keeping allocated.

There's currency risk in dealing across global markets.

And obviously, and importantly, you would also want to be diversified across multiple manager in property, or the real estate sector.

With global, the market is so much broader that you're really able to get good diversification across non-cyclical industries and multiple geographies.

And that's where term plus comes in.

So let's maybe now that we have.

Hopefully I've done a good enough job of giving you some background into global private credit.

As I've said, there's a lot more information online, but let's look at how we leverage off a diverse global private credit pool to deliver what we believe is a game-changing monthly income product.

As I mentioned at the start of this call, Term Plus offers a range of high-yield fixed-term investment accounts.

Essentially, a dollar put into a Term Plus account is divvied up across a diversified pool of over 2,000 underlying corporate middle market loans, and that's loans to billion-dollar-type businesses across the US and Europe.

In terms of our credentials and the highly regarded companies behind Term Plus, Term Plus is a product of ASX listed fund manager, Pangana Capital Group.

The office I'm sitting in today is the Pangana office.

And Pangana has a 22 year history as a leader in funds management, and almost $4 billion invested on behalf of Australian investors.

We also work closely with appointed investment consultant and global investment leader, MRSA.

If you don't know MRSA, you know, maybe one highlight and steps and you can do your own research.

MRSA have oversight of over 16 trillion US dollars in investments across the globe.

So they're a really big, really stable, really well-regarded institution.

Not only do we provide a simple online access points to one of the most attractive and fastest growing investment opportunities in the world, we also do it around what we think is a great customer facing wrapping with a number of different features that we've added to term plus term accounts.

So to talk you through some of those features and again, conscious of time, I won't labor the point.

As I mentioned earlier, the target rates on term accounts are linked to the RBA cash rate plus a fixed margin over and above that.

Account holders are able to choose how they pay on a monthly basis.

So, for example, if you're a retiree funding a retirement lifestyle and you need income, you're able to take the income paid to your bank account every month.

Alternatively, if you are just looking to save and get the benefit of compounding, you're able to reinvest that income every month and you can change that on a monthly basis through your account dashboard.

We have a number of built-in laser protection without getting into detail.

Essentially, that's underpinned by a co-investment that we make into TermPlus to support both customer capital and customer income.

Everything's online.

It's a quick and easy account setup.

We've got trusted institutions behind us that I've already touched on.

There's no setup fees, no monthly account fees.

And it really is a unparalleled and unique access point into a highly attractive asset class.

A few other credentials, just because they're on the screen.

We are an innovation champion finalists in the founder awards in 2024.

We have 100% target rate payment success since launch.

and 4.8 stars on Google.

Really, you know, I guess that's just saying take our customer word for it.

We're very focused on being customer first and making sure we deliver the best possible outcomes for our customers.

Just to touch on again, our terminal and target rates, but you can, you know, you can see that online and you can get a whole bunch more information.

And really, that's what that's, in a nutshell, what we like to call your money

making money.

Angelina, I don't know how I went for time.

I didn't have a stopwatch, but hopefully I'm within the constraints and gave enough information for investment market listeners today.

Timing's great.

Now we have time for some questions.

In terms of best term lengths, could you explain a little more?

Sure, so I guess as I started with this is general information only I can't give advice everybody's scenario is different really I think you know one way to think about it is if you have a bunch of capital or investible savings

Anything that you know these are fixed term lengths so anything that you would look to draw down on and use over the next at least 12 months wouldn't be appropriate for a product like this but for people sitting either with capital that they're looking to invest over a longer term one year plus.

Or perhaps on the other side, retirees who have a lump sum of capital and are looking to generate a monthly income.

That's where a product like this could be really useful.

What we have seen some people do, some people split it across different terminates, so they will have some money in a one year account.

that they know they're comfortable locking away for a year and if there's a bigger lump sum that they're happy for locking away for longer period they may split it across the two-year account but really everybody's situation is different and it just depends on what works for you.

Can investors open an account with their SMSF?

You can, we cater for a whole bunch of different accounts so self-managed super funds is a very popular

entity type for our customers.

Trusts and companies are also able to open accounts.

We have individual accounts, obviously joint accounts and child accounts as well.

So we really cater for the whole gambit of customers.

Can you provide some insight about currency fluctuation if you're investing in global markets?

Yeah, great question.

So look, as I said, Tramplus is part of Pangana Capital Group, Pangana is a fund manager, by nature, what we do is build investment product for customers, we've been doing it for 22 years, we've got just under $4 billion under management.

And so that was certainly one of the things we thought about when building this product.

And

Term plus is fully hedged back to Australian dollars.

So currency fluctuation wouldn't affect returns.

Thanks for your time, Dean.

Thanks.