July 11, 2024

Merricks Capital Partners Fund Portfolio and Market Update – June 2024


The Merricks Capital Partners Fund (the Fund) returned 0.8%* in June and 10.1%* on an annualised basis since inception. The Fund intends to declare a 4.0% distribution at 31 July 2024, which will be paid mid-August.

During the month, the Bank of Canada and European Central Bank both commenced rate easing by cutting interest rates 25bps, while the RBA’s path is expected to be less linear due to higher-than-expected May CPI (4% YoY), prompting a 50% probability of a rate hike by September. Bond yields remained stable, credit spreads widened, and CDS hedging contributed +2bps to the Fund, with total hedging costs including FX hedging at -1bps of performance.

Two new loans settled during the month. The first, financing the redevelopment of the iconic Jam Factory precinct in inner city Melbourne, the Fund will hold a 7% allocation. The loan will support two highly experienced institutional sponsors in the redevelopment of this unique 20,000m2 site. The loan facility is performance accretive to the Fund’s running yield and with monthly income servicing, illustrates the quality of credit opportunities that private credit now attracts. The second loan, a 1.3% allocation to the Fund, secured by agricultural grazing properties 80km from Perth with a peak LVR of 50% and forecast to deliver an investor IRR of 12.4% (net of fees and costs).

One loan repaid in full during the month, a 2.0% allocation to the Fund, secured by cropping properties near Moree, NSW. The borrower was able to refinance to a major bank after three favourable seasons of cotton and sorghum harvest. The loan returned 10.0% IRR (net of fees and
costs) and prior to borrower-led property sales in 2023, was one of the Fund’s largest agricultural loans. Part repayment occurred on two loans during the month, one specialised industrial facility where a key equity partner recapitalised the underlying business and will fund future product enhancing CAPEX with a $60m investment, and one agricultural loan that received $9m from consented property sales and reduced the loan LVR to <55%.

The residential shortage in capital cities remains a key thematic, with our asset exposure in this sector expected to increase from 11% to over 20% in 2024. Due diligence progressed on $950m of new investment opportunities, focusing on residential, commercial mixed-use, mixed farming, dairy, and specialised processing assets in the agricultural supply chain. Our current $300m pipeline of agricultural and specialised infrastructure investments has an expected peak LVR of 50%, with commercial real estate having a weighted average LVR of 61%, approximately 2-3% lower than comparable opportunities 12 months ago.

*These returns are stated net of fees and costs

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