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Merricks Capital Partners Fund Portfolio and Market Update January 2022

The Merricks Capital Partners Fund returned 0.6% in January and 10.4% on an annualised basis since inception.

Borrowers in the Merricks Capital Partners Fund across logistics, construction, hospitality, agriculture supply chain are keenly focused on the growth in inflation during 2022. A general scarcity in available labour is causing wage pressure, but more importantly we have observed a general lack of product supply across these sectors. The second-round effect of rising raw material prices and primary production wages is expected to translate into ongoing higher prices of consumer products with new year catalogue tenders and pricing expected to be higher for the foreseeable future. In the absence of an unexpected demand shock (economic slowdown) our base case scenario planning indicates higher interest rates and moderating asset prices will prevail. On a portfolio level, we continue to see very little borrower distress but remain aware of the challenges inflationary pressure may create for parts of the supply chain.

While no new loans were added to the portfolio during the month, as expected with the seasonal slow-down of summer holidays, due diligence progressed on the investment structuring of $200m of issued term sheets. $140m of these investments are expected to close in February and forecast to return an investor IRR of +11% (net of fees and costs).

The investment outlook for 2022 remains positive for the Merricks Capital Partners Fund with $550m+ of term sheets issued and $1.2b of identified opportunities across our investment sectors. $220m of the issued term sheets relate to agricultural credit opportunities. The $320m of term sheets relating to commercial real estate investments are split across land subdivision, hotel and residential sectors.

As we assess investment suitability in our opportunity pipeline, we remain highly cognizant of the macro-economic headwinds that 2022 may bring. The Merricks Capital Partners Fund credit hedging strategy continues to provide portfolio insurance against macro-economic shocks impacting credit availability or a pullback in real estate prices.

 

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