Pengana proposes LIC restructure to create credit-equities ‘hybrid’

Pengana Capital Group has made its intentions known to combine its global equities and global private credit expertise under the banner of its listed investment company (LIC), Pengana International Equities Fund (PIA).

The restructure proposal will see the portfolio exposure shift to approximately 70 per cent listed global equities and approximately 30 per cent in “highly rated” global private credit, as the move seeks to target a 56 per cent increase to PIA’s fully franked dividends.

The firm said it expects PIA’s fully franked dividends would rise to 8.4 cents per share, equal to a total dividend yield of 8.9 per cent based on the 31 July share price of $1.255, with dividend payments to be changed to monthly instead of quarterly.

The new global private credit portion of the portfolio will be managed by Pengana’s in-house credit specialist with Mercer as investment consultant, dipping into US and European private credit managers with long term track records and total exposure to more than 3,500 underlying mid-market corporate loans.

Russel Pillemer, CEO at Pengana Capital Group, said the endeavour was a “first for the LIC sector” and brings to market a “hybrid-like income alternative” for investors.

“This could be considered a new type of hybrid, which takes the opportunity to enhance fully franked dividend returns with global private credit,” he said.

“Equities and global private credit can complement each other perfectly, with global private credit adding an important unlisted investment component to the offering, which allows us to boost the income returns available to PIA shareholders.

“The yield from global private credit is uncorrelated to any changes in local interest rates, which is also attractive to investors seeking stability in yield, and even more so in a reducing interest rate environment.

“We can offer this advantage due to the closed-end nature of the LIC structure, which enables efficient investments into illiquid asset classes such as global private credit.”

Pengana confirmed PIA’s foray into global private credit will be financially backed by a “relatively low-cost secured revolving debt facility over the global equity portfolio” with the overarching firm to “cover the shortfall, should the returns from the global credit portfolio be insufficient to meet the cost of the debt facility”.

“More Australians are exiting accumulation and entering transition-to-retirement, and need investments with strong capital preservation characteristics,” Pillemer said.

“There is also a growing need for hybrid investors to find a reliable and meaningful replacement for their investments. Many traditional Australian dividend and income sources are exposed to similar economic forces. This lack of diversification means they can all fall in value at the same time.

“PIA plans to address these issues via global private credit, which is defensive in nature and provides a significant boost to income returns, that can also be reinvested for compounding benefits.”

The firm said these “unprecedented” changes will be proposed to PIA shareholders at its Annual General Meeting on 10 October.