M&G Investments is targeting £250m as they bring a niche part of the fixed income market to a broader range of investors via a closed-ended fund.
Private, alternative and illiquid credit assets will make up a significant allocation in the M&G Credit Income Investment Trust, which will become the asset manager’s only closed-ended vehicle when it lists next month. Jeremy Richards, who has been with the firm since 1983, will manage the trust.
M&G said the launch opens up its private credit expertise to all investors for the first time.
“Our pension fund and institutional clients have looked to the private markets as they hunt for yield and security within the fixed income universe and now other investors will have the same opportunity,” said Jonathan Willcocks, global head of distribution.
Prudential will subscribe for up to £80m worth of shares at IPO.
IPO target could be challenging
The £250m target sounds like a lot given it’s a niche area of the market, said AJ Bell head of active portfolios Ryan Hughes.
“From our perspective it’s something we’d want to do a lot more work on before we would commit. That would probably mean sitting on the sidelines seeing how it reacts in a number of different market conditions before we’d get really comfortable with a loan structure,” Hughes said.
Lots of trusts have not reached their IPO target, he said. On Wednesday, the Mobius Investment Trust only reached £100m – half its £200m target – despite having the backing of star fund manager Mark Mobius.
Floating rate appeal
However, loans are typically floating rate assets, which could be appealing in the current rising interest rate environment, Hughes said.
“More and more companies are issuing debt in the loan market as well as the high yield market. It does seem to be a growing part of the market. It’s typically companies already issuing in the high yield space perhaps opening up to different parts of the market.”
The portfolio will have a minimum 70% allocation to investment grade assets.
The financial crisis significantly changed Europe’s financing landscape, said M&G co-head of alternative credit William Nicoll (pictured). “Due to regulatory and other pressures, banks are no longer as dominant in some financing markets and new sources of private capital are now available to British businesses.”
The company will aim to pay out regular and attractive levels of income, Nicoll said.
Investment trust structure for private credit
Private credit is suited to a closed-ended structure, said investment trust chair David Simpson.
“The private credit markets can provide investors with assets that have strong covenants, lower volatility compared to corporate bonds and, in some cases, there is a premium when investing in assets with reduced liquidity,” Simpson said.
The M&G investment trust will hold assets such as asset-backed securities, commercial mortgages, direct lending to small and mid-sized companies, infrastructure-related debt assets, leveraged loans to private equity owned companies, as well as public debt instruments issued by corporates or sovereign entities.
In August, Neuberger launched the CLO Income Fund via an open-ended structure, but with fortnightly dealing.
The offer for subscription and placing for the trust opened on 26 September and closes on 7 November. The Placing closes on 8 November.
