La Trobe Financial keeps it simple with pure play

When La Trobe Financial decided to enter the US private credit market with US giant Morgan Stanley, it opted to mirror the tried and tested approach which has been its hallmark in Australia: the pure play portfolio.

After time spent carefully developing & bringing its US private credit product to Australian retail investors, La Trobe Financial believes its Morgan Stanley relationship delivers the intangibles advisers look for when discussing options with clients.

La Trobe Financial understands that one of the important tasks for the company is ensuring advisers and their clients appropriately understand the product and where it sits in the market and investor portfolios.

Looking at how the company will take the US private credit product beyond launch and into 2025, La Trobe Financial’s Chris Paton pointed to its Morgan Stanley antecedents.

“The product benefitted from the fact that when launched to market, the underlying portfolio was already diversified,” he said. “Morgan Stanley had readied a warehouse of loans diversified by borrower and sector, so that when we placed our first investment on 1 December 2023, our investors stepped into a portfolio that was already established and yielding income. ”

“The portfolio has and will continue to scale and diversify, and aims to deliver attractive risk-adjusted income for investors.”

Looking at how La Trobe Financial will take the product forward, Paton said it would be a case of ongoing education for investors and advisers about the product, where it sits in portfolios, and the unique opportunity they have of investing into a much broader economy than exists in Australia.

There was also the need to understand the growth of the private credit market in the US compared to Australia and how it is differentiated.

“One of the things we often get asked about is the proliferation of private credit.  Domestically, there are an increasing number of private credit managers, which could create a challenge if there isn’t the deal flow to support deployment of capital,” Paton said.

“It’s a very different market in the US. Yes, there are new managers that continue to come to the table, but it’s an already deep market aided by private equity firms who have built up huge reservoirs of dry powder that they need to deploy.”

“Over a trillion US dollars of private equity dry powder needs to be put to work and that will most likely be put to work through acquisitions of private companies including from the middle market.  That activity will require a similar amount of private credit to support M&A activity.”

“If you take it on a very simplistic basis, using 50% LTV for portfolios, to deploy that trillion dollars in private capital you need a trillion dollars of private debt.

So there’s a huge amount of opportunity there to continue to raise and deploy capital in private credit at attractive risk-adjusted premiums,” Paton said.

On the question of how well financial advisers actually understand private credit, Paton argues that the sector has become so broad that educational support is required.

“We’ve chosen the pure play path, meaning a focussed allocation of directly-originated senior secured loans to companies in the US middle market” he said.

He said keeping it simple was important because advisers diversified across different segments of private credit could find it quite challenging to understand all those segments and have high conviction around them in order to explain them to the underlying investor.

“We’re quite unique in that we have a pure play portfolio.  That allows us to speak to a part of the private credit market which is itself enormous, but is also the part of the private credit market that is a little more understood given its simplicity relative to some of the more highly structured segments.”

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe US Private Credit Fund ARSN 677 174 382. It is important that you consider the relevant Product Disclosure Statement (PDS) before deciding whether to invest or continue to invest in the fund. The PDS and Target Market Determination are available on our website.

Any financial product advice is general only and has been prepared without considering your objectives, financial situation or needs. You should, before investing or continuing to invest in the La Trobe Us Private Credit Fund, consider the appropriateness of the advice having regard to your objectives, financial situation or needs and consider the Product Disclosure Statement for the fund.

Past performance is not a reliable indicator of future performance.

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