A flexible approach to income without interest rate risk — Transcript

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1. 0:03Hello and welcome to Livewise Fund in
2. 0:05Focus. My name is Chris Conway. Today
3. 0:07I'm sitting down with Pete Robinson who
4. 0:09is going to be talking to us about the
5. 0:10Challenger IM credit income fund. Pete,
6. 0:13thanks for sitting down with LiveWire
7. 0:14today.
8. 0:15>> Thanks for having me.
9. 0:16>> We're here to talk about the Challenger
10. 0:18IM credit income fund. What is it? What
11. 0:20does it invest in? And what does it do
12. 0:22for investors?
13. 0:23>> Yeah, so the Challenger IM credit income
14. 0:24fund is a monthly liquid strategy with a
15. 0:2810% fund level gate. It invests in a
16. 0:30mixture of public and private credit
17. 0:32focused on areas where we feel you know
18. 0:34the best investment opportunities are.
19. 0:36So it gives us the breadth to be able to
20. 0:37look across the market and find those
21. 0:39opportunities whether they're in asset
22. 0:41back finance market corporate direct
23. 0:43lending or commercial real estate
24. 0:44lending markets. So a really broad
25. 0:46remitt to look across the market to find
26. 0:48those returns. It targets a cash plus 3%
27. 0:51return after fees without taking any
28. 0:53interest rate or currency risk. So, by
29. 0:55having that fund level gate, by only
30. 0:57letting 10% of the the money in the fund
31. 0:59out every month, it allows investors
32. 1:01access to their money on a monthly basis
33. 1:03if they need it for their own reasons,
34. 1:04but protects them from broader
35. 1:06withdrawals from from the sector and
36. 1:08then consequently allows us to go into
37. 1:11those less traversed parts of the market
38. 1:12to find those those pockets of uh excess
39. 1:15return that are available.
40. 1:16>> Yeah, Pete, the uh fund has a long track
41. 1:19record. Tell me about some of the people
42. 1:20behind it.
43. 1:21>> Takes a it takes an army, I like to say,
44. 1:23within private credit. It's a
45. 1:24manufacturing business, so we've got
46. 1:25over 40 people in our business going out
47. 1:28and looking for the right people to lend
48. 1:30to, making sure they're lending the
49. 1:31money at the right price, doing all the
50. 1:33due diligence in on the loans, putting
51. 1:35them together, negotiating terms and
52. 1:36conditions, monitoring and all all the
53. 1:38like that goes with that. So, it is
54. 1:39really a labor intensive business and
55. 1:41even, you know, for those transactions
56. 1:44for all the people we have within
57. 1:45Challenger, I am doing that work, we've
58. 1:47got a multiple of people outside from
59. 1:49the wider challenger group supporting
60. 1:50our business. So whether it's myself who
61. 1:53gets to to talk about it or or the the
62. 1:56leadership team within challenge or IM
63. 1:58you know it it does take a village to to
64. 2:00do all this this work.
65. 2:02>> Yeah. Pete one of the aims is to reduce
66. 2:04market risk. Talk to me about how you go
67. 2:06about doing that.
68. 2:07>> Yeah. So we we like to call it the KISS
69. 2:10principle which is keep it short stupid.
70. 2:12Um so within private lending you know
71. 2:14one of the great aspects of it I think
72. 2:16from a market risk perspective is that
73. 2:19um it is shortdated. So we are lending
74. 2:21people money for a shorter period of
75. 2:22time. I like to think of ourselves as an
76. 2:24an alternative lender and really we're
77. 2:26providing an alternative to public bond
78. 2:28markets or or the bank market. But by
79. 2:30virtue of that we we charge a higher
80. 2:32interest rate and so people don't want
81. 2:34to pay us that interest rate for a long
82. 2:36period of time. What we tend to find is
83. 2:37our loans are repaid within about three
84. 2:403 years and so the average um credit
85. 2:42duration or tenor of the fund is about 3
86. 2:44years and that compares to corporate
87. 2:46bond markets where issuance is typically
88. 2:487 to to 10 years and so it's a lot
89. 2:50longer um market and so what that means
90. 2:53is when the when spreads widen the draw
91. 2:56down for our funds from a capital
92. 2:58perspective tends to be much much lower
93. 3:00because we don't have the same duration
94. 3:02you know it's not to say that there's no
95. 3:03market risk I think we fair value our
96. 3:05portfolio so when there is volatility in
97. 3:07the markets, we do see unit prices move
98. 3:10up and down, which I think is
99. 3:11appropriate for investors to to see and
100. 3:13to understand. But certainly that idea
101. 3:16of of the KISS principle and keeping it
102. 3:18short helps um helps really mitigate um
103. 3:20some of those draw downs during times of
104. 3:22volatility and gives us the dry powder
105. 3:24to go out and invest.
106. 3:26>> Pete, the fund can invest across public
107. 3:28and private credit. Why is that
108. 3:29important and what flexibility does it
109. 3:31give you? The reason it's important um
110. 3:33you know there's a lot written about
111. 3:35private credit at the moment and
112. 3:36certainly um there are opportunities
113. 3:39within private markets to drive excess
114. 3:42return consistently over a long period
115. 3:43of time. We we firmly believe in that
116. 3:45idea of an ili liquidity premium. So
117. 3:47that excess return you get from
118. 3:48investing in private markets but it's
119. 3:51not there all the time and I think
120. 3:52that's a really important distinction. I
121. 3:54talk about the 9010 rule and I like to
122. 3:56remind people that 90% of the time
123. 3:59private markets are the best place to
124. 4:01be. Gives you that illquidity premium,
125. 4:03gives you that excess return when
126. 4:04markets are stable. But the best trades
127. 4:06are during the 10% of time when markets
128. 4:08are volatile and you go into public
129. 4:10markets because what you can do in
130. 4:12public markets is buy something cheap.
131. 4:14Um what tends to happen during periods
132. 4:16of volatility in private markets is
133. 4:17transaction activity slows to a halt. So
134. 4:20you can't really monetize volatility in
135. 4:22private markets whereas you can within
136. 4:24public markets. So CO's a great example.
137. 4:26The best trades we did within Covert
138. 4:28were investment grade rated bonds that
139. 4:30we bought at very discounted prices and
140. 4:32sold them 6 to 12 months later at
141. 4:34significant capital gains.
142. 4:36>> Yeah, Pete, talk to me about the
143. 4:37objectives of the fund and how's
144. 4:39performance been.
145. 4:41>> Yeah, look, we're really pleased with
146. 4:42the performance that we've had since
147. 4:442017 when we when we launched the fund.
148. 4:46The aim of the fund is really to deliver
149. 4:48that cash plus 3% return consistently um
150. 4:51through time with capital stability and
151. 4:54high levels of high levels of income.
152. 4:55And we've been able to do that. Um so 90
153. 4:58plus% of the returns comes from income
154. 5:00generation. And so I like to say to to
155. 5:02investors, you know, it's a really
156. 5:03simple business that we're involved in
157. 5:05here at um at Challenger. We find the
158. 5:08right people to lend money to. We lend
159. 5:09the money at the right interest rate and
160. 5:11we get paid back. And so there's no
161. 5:13special source here. I'm not trading the
162. 5:14market actively. and positioning for,
163. 5:17you know, the next bout of of
164. 5:19volatility. We'll respond when that
165. 5:20volatility emerges, but really what
166. 5:22we're in the business of doing is
167. 5:24lending people money at the right
168. 5:25interest rate um and getting paid back.
169. 5:27>> Yeah. What other features should
170. 5:29investors be aware of?
171. 5:31>> Look, I think I think the the liquidity
172. 5:33features of the fund are unique and are
173. 5:35differentiated and people should
174. 5:36understand that as part of the
175. 5:38proposition and so it does offer that
176. 5:40that idea of monthly redemptions with a
177. 5:4310% fund level gate. So that means that
178. 5:44only 10% of the the AUM can be redeemed
179. 5:47from the fund in any given month. Now in
180. 5:50our view for individual investors that's
181. 5:52a really powerful feature because it
182. 5:54allows them to access their money for
183. 5:56their own reasons if they need it for
184. 5:58whatever personal purposes they need.
185. 6:00But during those periods of volatility
186. 6:01and stress say in March of 2020 when
187. 6:04there was this early release to to super
188. 6:06investors were protected from that. The
189. 6:09other thing I think that's important
190. 6:10about this feature is it reminds
191. 6:12investors that this is not a cash
192. 6:13substitute. So you shouldn't be putting
193. 6:15money into the fund with expecting to
194. 6:17have access to it reg, you know,
195. 6:19whenever whenever you need it. It's not
196. 6:21a cash substitute. It's there to drive
197. 6:23incremental income and capital stability
198. 6:25over the medium-term horizon.
199. 6:27>> Yeah. Pete, most importantly, where can
200. 6:28investors find out more?
201. 6:30>> I mean, there's a lot of places. Um,
202. 6:31we're we're we're all over the place
203. 6:33these days. So, um, Challenger's
204. 6:35website, challenger.com.au.
205. 6:36Um, we also have a website
206. 6:38challenger.com.au
207. 6:40that investors can can go to. Uh, I'm
208. 6:42personally pretty active on on LinkedIn.
209. 6:44So, you can see you can see some of my
210. 6:46thoughts uh thoughts there. And of
211. 6:48course, it would be remiss of me not to
212. 6:50mention uh the LiveWire website where
213. 6:53you know you you guys have been really
214. 6:54um big supporters of our business and
215. 6:56helped us um helped us establish our
216. 6:58footprint in the market. So, maybe the
217. 7:00first place to go is is LiveWire.
218. 7:02>> Thanks for the plug. The checks in the
219. 7:03mail. Thanks, Pete.
220. 7:04>> Thank you. Thanks for having me. If you
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