Local private debt manager, Private Capital Group (PCG), has secured a KiwiSaver mandate in a likely first allocation to the asset class for the sector.
Aurora Capital, investment manager of the associated namesake $260 million KiwiSaver scheme, will initially target a weighting of 3 per cent to the PCG fund across two of its diversified portfolios.
Sean Henaghan, Aurora Capital chief investment officer, said over time the illiqiuds allocation could ramp up to 7-8 per cent to an asset class that has structural tailwinds.
“We’ve been keen on illiquid assets for some time,” Henaghan said, selecting PCG after a thorough due diligence process.
“Private debt has a strong tailwind both globally and in NZ and were pleased to find the right people to exploit the local opportunity. The PCG team is vastly experienced in the asset class.”
He said most offshore private debt managers are too large to operate in small-to-medium sector of the NZ corporate debt market, opening up opportunities for specialists such as PCG.
Aurora has funded the NZ private debt exposure via the PCG portfolio investment entity (PIE) vehicle from its equities holdings, reflecting the risk-profile of the strategy.
“Private debt might be considered risky but in some ways it’s less risky than the NZ equity market,” Henaghan said.
While private corporate debt does offer a illiquidity premium, the PCG fund has a reasonably short average maturity of 2-2.5 years with regular distributions along the way.
Founded by Paul Carman and John Ferrara in 2019, PCG launched the PIE fund in 2022 with a handful of early institutional clients now on board including MyFiduciary, Harbour, Forsyth Barr and JBWere as well as allocations from iwi, family offices and high net worth individuals.
Ferrara said the fund is now at $30 million with a clear pathway to $50 million by the end of June.
He said while private debt is a nascent asset class in NZ, the demand from both investors and corporate borrowers was set to grow.
Banks have largely exited the sub investment grade corporate loan market, Ferrara said, leaving many good, profitable local companies with stable cash-flows starved of capital. At the same time, investors were seeking alternative assets for diversification, capital growth and yield.
“Reserve Bank of NZ business lending statistics show that the sub-investment grade loan market here is about $20 billion,” he said.
The PCG fund targets a return of 4 per cent above the official cash rate: Adminis provides administration while Public Trust serves as custodian and supervisor.
Henaghan said Aurora had no immediate plans to add further managers to the scheme panel following a remodel last year that saw First Sentier appointed for global listed infrastructure along with stablemate, Stewart Investors, for international equites (Dimensional also gained a spot in this asset class), Mint for NZ shares and the MetLife Affirmative Green Bond Fund in global fixed income.
Launched in 2021, the Aurora KiwiSaver has been one of the fastest-growing schemes with current assets under management of about $260 million.
The scheme was sold exclusively through the related Aurora Financial Group, which is now known as Enva following an ownership change last month (as reported elsewhere this week). Aurora Capital, meanwhile, has almost 10 financial advisers operating under its own licence.