By Ian Irvine, Chief Executive Officer at the Listed Investment Companies and Trust Association.
As part of the work I do for the Listed Investment Companies and Trusts Association (LICAT) I spend time speaking with investors at a range of events. Some may have seen our session at the ASA Investor Conference in Melbourne earlier this year.
During my travels, I’m finding a lot more conversations about ‘alternatives’ and ‘private markets’, so I thought it may be useful to explore these asset classes a little further.
‘Alternatives’ are typically alternatives to equities, bonds or cash and can include asset classes, such as infrastructure, private credit/ debt (loans to businesses), private equity (investments in distressed assets/business or emerging opportunities) or commodities for example.
The term ‘private markets’ has typically applied to markets that are not available on public exchanges, such as ASX. Investors into private markets are generally required to make significant investments, $500,000+ to gain access to the underlying assets.
Over recent years this has changed with these asset classes, both alternatives and private markets, becoming more easily available for retail and SMSF investors via access to entities listed on exchanges like an ASX.
To find out more, I asked three fundies using the closed-end structure of a listed investment company (LIC) or listed investment trust (LIT) and managing different assets classes in these markets for a quick overview of what they do and why these ASX listed closed-end structures are suited to holding these assets.
First up I spoke with Dania Zinurova, Portfolio Manager of WAM Alternatives (ASX: WMA) at Wilson Asset Management. Here’s what she had to say.
Ian: Dania, what is WAM Alternatives?
Dania: WAM Alternative Assets is the only listed investment company listed on the ASX that gives access to retail and wholesale investors in Australia to a well-diversified portfolio of alternative assets.
Ian: What type of assets does WAM Alternatives hold? Dania: We invest in private equity, infrastructure, private debt, real estate and real estate across the risk-return spectrum.
Ian: Dania, that’s a broad range of asset types.
Dania: Yes. It is; Its main objective is to provide diversification benefits, deliver relatively stable yield, with attached tax benefits due to the LIC structure and strong potential for capital growth by investing in private equity and other growth strategies. Its structure enables investors to invest in those strategies without taking on illiquidity risk.
Ian: And the closed end structure of the LIC works for you?
Dania: Yes, and for our investors as the LIC structure enables us to take a long-term view and manage the portfolio consistently across the economic cycles as there is no redemption or commitment mechanism as with unlisted or open-end trusts structures. Shareholders can instead buy or sell their shares in WAM Alternative Assets on ASX based on their individual investment goals and objectives.
Next, I chatted with Jason Beddow, Managing Director of Argo Global Listed Infrastructure (ASX: ALI).
Ian: Jason, many of our readers will know Argo Investments Limited (ASX: ARG), which invests in Australian equities, however some may not be familiar with ALI, tell us a little more.
Jason: Thanks Ian, in 2015, Argo Investments established Argo Infrastructure as and it still is the only ASX-listed investment company offering investors exposure to global infrastructure stocks. Our portfolio is managed by specialist New York Stock Exchange-listed fund manager Cohen & Steers from offices worldwide.
Ian: So, why global listed infrastructure?
Jason: For Australian retail investors, there are now just a handful of infrastructure companies listed on the ASX, and they represent only a few types of infrastructure assets. Beyond our shores, there are more than 350 listed infrastructure companies with infrastructure assets across both emerging and developed economies.
The global listed infrastructure universe includes all types of infrastructure companies, including subsectors leveraged to the most significant structural economic trends of our time, including the AI boom and energy transition.
Ian: And the LIC structure works for you?
Jason: Argo Infrastructure’s straightforward ASX-listed investment company structure offers investors simple exposure to this large and often complex asset class through a single ASX trade.
Ian: There are other benefits provided by the LIC structure, which is effectively an Australian company listed on ASX like many other entities.
Jason: Yes, there is, a significant benefit of investing in international assets via a LIC structure, particularly the ability to generate franking credits because the LIC pays tax in Australia. This is a unique advantage not offered by other managed investments that invest in offshore assets (such as trusts) or by investing directly overseas.
Rounding out our discussion is Mark Power, the Head of Income Credit at Qualitas who manages Qualitas’ listed investment trust – the Qualitas Real Estate Income Fund (ASX: QRI).
Ian: Mark, tell us a little about what the QRI is and what some of the benefits are?
Mark: QRI is our flagship real estate private credit fund which provides loans to commercial borrowers for real estate investment and development purposes. The fund is designed to deliver in volatile times such as these and aims to deliver regular monthly income at attractive risk-adjusted returns for investors1.
Ian: Does real estate private credit perform in an elevated interest rate environment?
Mark: The short answer is yes. Unlike direct property ownership, real estate private credit loan values do not fluctuate like property values, meaning investors can reap the benefits of Australia’s growing property market without the risks of owning property. The stability of the loan value creates predictable cash flow in the form of regular interest payments from the borrower, which provides income to investors through monthly distributions1.
Ian: What should investors look for when considering including private credit in a portfolio or SMSF?
Mark: For new investors, it’s important to understand that real estate private credit loans are not just one type of loan. There are different loan types with that vary in risk-return profiles, property sectors, geographies and types of borrowers.
Investors must therefore be diligent in selecting a manager – it’s a specialised asset class that requires a specialist manager with experience through multiple cycles, deep borrower relationships and a core focus on risk management.
References
- The payment of monthly cash income is a goal of the Trust only and neither the Manager or the Responsible Entity provide any representation or warranty (whether express or implied) in relation to the payment of any monthly cash income. Returns are not guaranteed. The premium achieved is commensurate to the investment risk undertaken. Past performance is not a reliable indicator of future performance.
- https://wilsonassetmanagement.com.au/lic/alternative-assets/
- https://argoinfrastructure.com.au/
- https://www.qualitas.com.au/listed-investments/qri-overview/
