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Private Debt shows its resilience in 2022.

• In June 2022, the Merricks Capital Partners Fund generated a net of fees return of 1.18%. This resulted in an annualised one-year return for the fund of 8.95% and an annualised return since inception of the fund in 2017 of 10.45%.

• In June 2022, Merricks Capital Agriculture Credit Fund generated a net of fees return of 0.69%. This resulted in an annualised one-year return for the fund of 8.69% and an annualised return since inception of 8.88%.

• On Tuesday, the RBA lifted the official cash rate for the third consecutive month to 1.35%, its highest level since 2019. RBA guidance and market expectations suggest that a ‘normalised’ cash rate of 2-3% will be achieved by the middle of 2023.

NSW is yet again experiencing severe flooding which is expected to impact commodity supply chains in the short-term and potentially real estate assets too. We have been in contact with our borrowers in affected regions and apart from estimates of 1–2-week delays on some construction schedules there are no current concerns reported in relation to our investments.

Soft commodity prices have come off previous Q1-2022 highs, which reflect current uncertainty in the US market and other economies around recession risks. There remains a supply shortage of key soft commodities globally and we expect that primary production businesses will continue to benefit from higher-than-average farmgate prices for FY23.

We settled three new loan investments in the past week, totalling $165m of capital. Each of these new loans are senior secured against high-quality real estate assets and structured to return a fixed interest return, plus the variable bank bill swap rate, so our funds will benefit from future rate hikes. In addition, we restructured and extended one agricultural loan this week which resulted in an improved forecast investor return (forecast investor IRR 10.9% net of fees and costs).

 

Both the Merricks Capital Partners Fund and Merricks Capital Agriculture Credit Fund are near fully invested as per the above graphs.

The investment opportunity in private credit is increasing with the reduction of liquidity in the markets from the banking sector creating a strong outlook for the investment sector across Australia and New Zealand.

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