November 10, 2023

Merricks Capital Partners Fund Portfolio and Market Update October 2023


The Merricks Capital Partners Fund (the Fund) returned 0.9%* in October and 10.2%* on an annualised basis since inception.

The Fund was fully deployed during the month with cash <5% of FUM. One new loan settled during October, a 0.3% allocation to the Fund secured against South Australian cropping and grazing assets. The loan facilitated the acquisition of a new grazing property and is structured to reduce debt via condition subsequent asset sales. The loan is expected to return an investor IRR of 11.1% and peak LVR of 47%, with a closing LVR of 29% in 24 months’ time at expiry.

Bond & equity markets globally were mostly negative in October with volatility jumping higher (VIX and MOVE) supporting CDS spreads. Bond yield curves steepened (US 10y tested 5%)and bond volatility (~8bps a day on average in October) kept investor risk appetite low. Domestic CPI and retail sales both showed resilience in consumer spending and will likely prompt the RBA to drive reference rates still higher in 2023.

Currently we expect a 5-10% correction in rural land prices from 2022 highs, based on our observed loan book transactions and 1H 2023 having the lowest volume of rural sales in 28 years (Rural Bank). With the weighted average LVR of our agricultural loans at 57% we’re confident that there’s sufficient equity buffer to navigate any asset price corrections for our loans over the next 12-18 months. For 2024, the Fund’s performance is forecast to deliver investors a 6% premium to current 10yr bond rates (approx. 10.2% before credit hedge movements), returning an equity-like risk premium while taking significantly less risk.

Due diligence continued on $350m of senior secured loan opportunities across Residual Stock Facilities, Mixed Farming and Resources. These investments will be accretive to Fund performance, with a weighted forecast return of 12.2% and weighted LVR of 59%.

*These returns are stated net of fees and costs


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