Sydney, 31st October 2024 – Foresight Analytics & Ratings Reaffirms STRONG Rating for Payton Pooled Investment Fund.

Foresight Analytics has recently completed a rating assessment of the Payton Pooled Investment Fund (PPIF).

This fund has been reassigned a STRONG rating reflecting Foresight’s strong level of confidence that the fund can deliver a risk-adjusted return in line with its investment objectives.

The Foresight Product Complexity Indicator for this fund is COMPLEX, which indicates the underlying assets require specialist investment skills to acquire, monitor and manage through the market cycle. This type of investment is suitable for investors who understand the specialised nature of private debt investments including illiquid characteristics.

The Fund invests in Australian private commercial real estate (CRE) debt across the collateral risk spectrum of first mortgage, second mortgage, mezzanine (small allowance). That said, Payton will always focus on first mortgage lending that forms the ‘core’ exposure.

Investors have 3 options within the PPIF – Cash-Plus, Core and Opportunity (‘sub-funds’)  each with a different risk and reward profile. As is generally the case in the Australian CRE lending segment, loans are of a short-term tenure (1 year). Combined with an even shorter average loan expiry in each sub-fund, these short tenures mitigate economic and property development sector cycle risks for investors. The short duration nature of lending also reduces liquidity risk as self-liquidation is intrinsic to the process.

On 1 July 2024, HMC Capital Limited (HMC) completed the 100% acquisition of Payton. HMC acquired Payton to broaden its private credit platform to include mortgage-backed lending, taking the business from a founder-led entity to a division within a broader, integrated business.

HMC is an ASX listed (ASX: HMC) alternative asset manager which invests in high conviction and scalable real asset strategies on behalf of individuals, large institutions and super funds. HMC has $12.7bn in asset under management and employs over 200 investment professionals. The Payton business is now a core component of HMC’s broader private credit platform.

Following HMC’s acquisition, Payton’s founder and former CEO David Payton has moved into a consultant role with HMC, with Craig Schloeffel (formerly Head of Investment) and Jeremy Townend (formerly Head of Lending) taking over as co-heads of Payton. Matt Lancaster (Chair of HMC Capital Private Credit Platform), Mark Heaven (COO), Grant Murphy (State Manager QLD and NSW), Peter Loukas (State Manager VIC), Matt Clifford (National Property Director), Robert McLellan (Chief Risk Office) and Kelly Jarrett (CFO) and make up the rest of the Executive team.

Despite having a medium-term track record, the PPIF has performed strongly since its inception, achieving its different and variable target ranges. Impressively, the Investment Manager has never recorded a loss given default. This can be attributed to Payton’s strong relationship with and knowledge of borrowers, its depth and breadth of deal sourcing network as well as conservative and quality focused underwriting process.

Over the past 12 months, Payton has grown its FUM with total AUM (including undrawn facilities) of $1.6bn at 30 June 2024. Despite the current Australian macroeconomic headwinds, Payton continues to benefit from the withdrawal of banks from the domestic lending market, with a particularly strong pipeline of prospective lends.’

Following acquisition of Payton by HMC Group, we expect the firm to continue to execute on its growth agenda with an added benefit of strong governance and resources support from HMC.

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About Foresight Analytics’ Investment Due Diligence Rating (IDD Rating) 

The objective of Foresight Analytics’ Investment Due Diligence Rating (IDD Rating) is to identify the best funds and opportunities for future investment. We assess the fund’s historical risk-adjusted performance – compared to its peers – to form a holistic view of the manager’s ability to deliver future returns. The IDD rating indicates the quality of the investment option within the context of a diversified portfolio and full investment cycle.  

 Foresight’s analysts use a 5-point scale to determine how the fund will perform against a range of risk factors.   

• SUPERIOR indicates the highest level of confidence that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is highly suitable for inclusion on APLs.
• VERY STRONG indicates a very strong conviction that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is suitable for inclusion on most APLs.
• STRONG indicates a strong likelihood that the fund can deliver a risk-adjusted return in line with its investment objectives and that it is suitable for inclusion on most APLs.
• COMPETENT indicates the fund may deliver a risk-adjusted return in line with its relevant benchmark and that it may be suitable for APLs.
• WEAK indicates the fund is unlikely to deliver a risk-adjusted return in line with its investment objective and that it is not suitable for most APLs.

A ‘Hold’ designation is applied to a fund’s rating if a material change impacts the fund manager, and we need to review the rating.  A ‘Sell’ designation indicates the Foresight Investment Ratings Committee considers risk factors to be elevated enough that maintaining an investment in the fund as part of their diversified portfolio is questionable.

Foresight Analytics Foresight Complexity Indicator  

A Foresight Complexity Indicator (FCI) highlights the complexity of an investment product based on a range of indicators. These typically include its terms and conditions, performance-based fees, liquidity structure, financial leverage, use of derivatives, rare and niche asset class/opportunity set, currency exposure and the level of transparency offered for investors. Foresight believes these factors can disproportionately affect risk–adjusted return outcomes for investors even if a manager is very skilled. Investors can use FCI as a guide to portfolio position sizing within a diversified portfolio context. 

Media Contact – Foresight Analytics

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Email: shruti@foresight-analytics.com 

Web: www.foresight-analytics.com

About Foresight Analytics 

Foresight Analytics, an independent Sydney based firm, provides investment diligence, data analytics, and advisory solutions to leading investment management companies, superannuation funds and wealth groups across the Asia Pacific. Foresight’s innovative, evidence-based approach blends both human and forensic insights to provide a range of analytical, predictive and market intelligence solutions to investors. Foresight Analytics was founded in 2015 by Jay Kumar, a former executive of Morningstar, Optimix Investment Management, ANZ Wealth & Private Bank and the Reserve Bank of Fiji. 

Foresight’s fiduciary solutions includes Diligence Services (Investment, Operational, ESG & Risk Diligence), Data Analytics and Asset Consulting. Foresight’s fund strategy solutions include Data Analytics for asset managers, Fund Strategy Benchmarking Solutions and Strategic Research. 

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