Improving investor access to corporate loans

The fund has been established to invest in middle-market direct lending in Australia and New Zealand. We invest in businesses with revenues of between $50 million and $1 billion and EBITDA of between $5 and $50 million.

Lending to these businesses has historically been dominated by the banks and approximately 96 per cent of the corporate lending market is provided by traditional financial institutions.

It is anticipated that the fund will be diversified by the industries it invests in and won't have exposure to property. We feel the non-bank property lending space is becoming increasingly crowded, and we'll be lending to going concern businesses across Australia and New Zealand.

On a fully mature portfolio we intend not to invest more than 10 per cent per borrower and 20 per cent per industry. We intend to have close to 50 loans.

We expect to raise between $150 and $200 million in the initial offer and we think we will be able to deploy that within a 6-month period. We are targeting returns of 4 per cent above the RBA cash rate.

We feel like it meets a number of investor demands in the current environment. It's a product class that investors have historically been unable to access, and we see a changing shift in how financial institutions are approaching middle-market lending. I think now the environment with coronavirus has just exacerbated that problem.

Banks now have tighter lending standards and they don't really like moving outside their traditional markets and are keeping to much lower risk lending. Good quality borrowers are starting to understand that the non-bank sector offers genuine funding solutions and flexibility. Most borrowers now have their go to relationship bank and their go to non-bank financial.

The stapled fund is comprised of the 360 Capital Credit Passive Income Trust and the 360 Capital Credit Active Income Trust. The stapled fund is very common and allows an investment to be held in either trust depending on the nature of the investment. The passive trust generally allows income to be directly distributed through to investors. The active trust will generally be treated similar to a company and taxed prior to any distribution to investors. It just allows us to play across the capital stack and ensures investors can benefit from different tax treatments.

We were planning on launching a listed investment trust and of course Coronavirus and the deterioration in financial markets meant we had to pause for a moment and assess the credit investment opportunity.

We see the ability now to get more attractive risk profiles at better returns as bank borrowers start to look outside traditional financial institutions for their financing needs during these times.

Investors who apply during the initial offer period of four months (between 13 May 2020 and 13 September 2020) will receive a guaranteed minimum of 2.5 per cent annualised for the first 12 months of the fund life.

Given the fund doesn't have seed assets if investors are looking to reallocate out of cash they are not forfeiting cash returns. This also doesn't preclude them from earning more than the 2.5 per cent subject to the successful investment of proceeds raised through the offer.

In the listed environment there are but our listed peers have been somewhat affected by the economic impacts of the Coronavirus, both directly in their investments and also through the performance of their funds from a market pricing perspective and hence there are some trading at heavy discounts to their net tangible asset backing.

We don't feel like there is a huge amount of lenders who have the ability to provide diversified opportunities in this market. In the mid-market corporate sector there are only a few unlisted funds that play in that space.

The biggest challenge we are facing is engaging with financial advisers and whether the investment decision can be made via videoconference. Noting this however, there has been strong demand for the product in the current climate and we're confident of hitting our capital-raising target.

Marketing does change. Our distribution partner, Cambridge Investment Partners, of which 360 Capital is a shareholder, gets us in front of a lot of our investor base. We know this is a long-term business and hence we are investing the time with our distribution partner and our end clients.