The ability of private debt strategies to provide a significant yield premium to traditional assets with a higher level of covenant protection will be discussed when Russell Investments introduces its new Private Markets Income Fund at the virtual Campden Wealth Corporate Member Grill on 20 April.
Majid Khan, a director within the Alternative Investments team at Russell Investments, will join the virtual forum and answer questions from global family principals about the fund, as well as the benefits of private debt versus traditional debt assets.
With almost 20 years of investment experience across research and portfolio management, Khan told CampdenFB the demand for income generating assets has led to compressed levels of yield from traditional assets due to central bank policies over the past decade.
“Yields from developed market government bonds, investment grade bonds and high yield bonds are at historically low levels,” Khan said.
“In addition to this, the huge demand for these assets has led to an increase in new issuance with lower covenant protections for investors.
“The Private Market Income Fund was designed to deliver a high level of income through exposure to privately originated loans which have a high level of covenant protection for investors.”
The fund is structured to have a one-year fund raising period, two-year investment period and a six-year harvest period. The first close of the fund was held in December 2020. The target final close is December 2021 however, it can be extended to June 2022.
The end of the investment period for new commitments is scheduled for December 2023. The end of the fund life is set for December 2029, Khan said.
“Although the fund is structured as an eight-year fund, we expect capital to begin to be repaid sooner, from year-four onwards, as underlying loans are re-financed; hence, cash is not trapped for the full eight-year period.”
Asked how family investors can benefit the Private Markets Income Fund (PMIF), Khan said with a lack of income from other traditional investment assets, exposure to PMIF can be a powerful addition to a family’s income generating portfolio.
“The fund aims to deliver income of 5% per annum through exposure to high quality, directly originated loans that are structured with a strong set of covenants and investor protections. Exposure to these loans is obtained through the selection of the highest quality specialist managers with best of breed sourcing, analysis and restructuring teams to manage the loans through the full cycle.”
Khan said ESG [environmental, social and corporate governance] has become an increasingly important factor when assessing underlying managers for exposure to the private space in general.
“We are working hard to put measurement and monitoring structures in place to improve the ESG process further,” he said.
“At Russell Investments, we score each underlying private markets manager on their approach to ESG at every stage of their investment process. We revisit the ranks regularly and monitor the progression over time. There is a large focus in industry to build better tools and processes to understand each of the factors, with an aim to improve them over time.”
Asked what the risks and rewards are for families in private markets in 2021, Khan said the growth in private debt strategies has been very strong over the past 10 years with a rapid expansion in the size of the universe of underlying managers.
“Manager selection has become increasingly important to ensure investors are locking their money up with a selection of managers who have the right combination of resources, personnel and experience to manage their strategies successfully.
“Investors should ensure that the managers they select have the ability to succeed not just in the good times, but are also able to react and manage issues when the environment becomes more challenging—this factor will be the main differentiator over the full cycle.
“The reward for investing in a high-quality selection of private debt managers can be a stable, high level of income, which is delivered with low levels of volatility and lower risk of default than traditional high yield or syndicated loan investments.”
The Campden Wealth 2021 Corporate Member Grill Series is an opportunity for attendees to participate in a virtual gathering amongst their peers, hearing from two of Campden’s leading corporate members at each event.
Each corporate member will present then respond to questions and opinions from the audience. The next grill, featuring Russell Investments, will be held on 20 April at 14:00-15:30 BST and attract global families bringing their own experience and questions to the table.
Registration is complimentary but places are strictly limited and for qualifying family office principals and executives only.
To apply for your place, please contact Liam Smith on +44 (0) 20 3941 8018 and via firstname.lastname@example.org.
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