Dancing with the devil

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Merricks Capital provides innovative investment solutions that deliver consistent performance for its investors while operating with financial discipline and prudent risk.
Our investment strategies include private credit across commercial real estate, agriculture and infrastructure and specialised industrial.

We continue to experience a remarkably stable loan book performance when considered in the context of the first Australian economic recession in 30yrs.
In fact, the price at which various asset classes are trading suggests the monetary stimulus provided by the Reserve Bank and its global peers are driving near record risk seeking by some financial institutions and fund managers who must deploy their investment mandates. This more than supports the values underpinning our lowly geared loans.
In discussions with the world’s largest prime brokers over the last week they are reporting credit funds and hedge funds are holding the highest gross leverage positions they have seen in the last decade. A clear sign of solid risk taking by professional investors.
One example of intended central bank intervention which is driving record risk taking is the recent announcement by the RBA to extend the Term Funding Facility to Australian Banks. This program enables banks to borrow another $100bn at 0.1% for 3yrs, which in our opinion is unquestionably below the price they would otherwise need to pay for capital to justify the risk.
The banks can now secure much of their own funding without having to go back to the bond market for the expected or usual quantum. Less issuance of bonds results in more competition from buyers who need to deploy cash to this low risk asset class. As a result, credit spreads are the tightest we have seen since founding Merricks Capital 13 years ago.
It does feel that some participants in property, infrastructure, equity and credit markets are “dancing with the devil” by assuming the current money supply chain that is fuelling asset prices is a fair reflection of risk vs return.
The micro shock in the bond market on Monday which saw a dramatic sell off in bonds and one of the worst days in long short equity hedge fund performance history suggests there are some warning signs in the microstructure of markets. Most of the world was oblivious to these shocks as stock markets surged but we are seeing some reason to be vigilant as it was this type of gyrations during 2007 and 2008 that proved to be the canary in the coal mine.

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Merricks Capital Agriculture Credit Fund Portfolio and Market Update – August 2024

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Investors

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Investment Objective

Where preparation meets opportunity

Dancing with the devil

Latest Insights

Navigating the Bottom of the Asset Market

Merricks Capital Agriculture Credit Fund Portfolio and Market Update – August 2024

Merricks Capital Partners Fund Portfolio and Market Update – August 2024

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