Press Release -Foresight Analytics & Ratings Reassigns a ‘Very Strong’ Rating to Aura Private Credit Income Fund
Foresight Analytics & Ratings has recently completed its’ ratings assessment of the Aura Private Credit Income Fund.The Fund rating has been reaffirmed as VERY STRONG, indicating very strong level of confidence that the Fund can deliver a risk-adjusted return in line with its investment objectives at this stage of the growth of online lending in Australia. The investment manager’s support for this strategy is experienced and well-resourced.
A Foresight Product Complexity Indicator (PCI) for the Aura Private Credit Income Fund has also been designated as COMPLEX, indicating the manager will seek to outperform their chosen specialist market sector, in this case, the Australian SME loan market. A key risk is the ability of Aura to identify and validate superior loan underwriting and servicing standards of non-bank lenders with experience in the SME sector
The Aura Private Credit Income Fund (‘the Fund’ or ‘APCIF’) was launched in August 2017 and is managed by Aura Credit Holdings Pty. Ltd. (‘the Manager’ or ‘Aura’). The Fund (formerly known as the Aura High Yield SME Fund) provides funding to niche (non-bank) lenders that specialise in providing finance to small-to-medium businesses (SMEs) in Australia by way of warehouse financing structures. These warehouse facilities are typically segmented into 3 Notes (or tranches).
The Fund ranks either first or second or a combination of both. The third Note is a first loss buffer (the Equity Note), held by the third-party loan originator, who takes the first losses up to the value of that Note.
The Fund currently provides funding to 7 SME lending originators via separate warehouse financing structures (and a contributory mortgage scheme). By way of these originators, the Fund provides access to a portfolio of over 13,000 loans. Warehouse financing, managed by a competent investment manager like Aura, offers investors a range of protections and benefits over other forms of private credit, as listed below: 1. At least 2 layers of protection at the loan level 2. Collateral protections, including the lender’s first loss capital (Equity Note) plus any retained interest margin and origination fees in the first loss buffer 3. The Manager’s ability to mitigate lending segment risk by tailoring strict portfolio parameters and credit enhancement (first loss) levels 4. The ability to select best-of-breed niche non-bank lenders 5. A floating-rate structure, which minimises interest rate risk 6. Short loan durations that mitigate economic cycle risks 7. The Manager is able to make tactical tilts in relation to segment/economic exposures 8. Harvests key private premia: illiquidity, scarcity and complexity.
Rob da Silva, Head of Research at Foresight Analytics, says, “Consistent with a mix of senior and higher-risk junior positioning in warehouse facilities, the Fund aims to generate a return in excess of the performance benchmark − the Reserve Bank of Australia Cash Rate + 5% (currently 8.85%% p.a.). Since its inception, the Fund has recorded an annualised compound return of 9.6% p.a. with no loss-given-defaults (LGDs).”
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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.
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Media Contact – Foresight Analytics
Rob da Silva
Head of Research
Suite 208, 33 Lexington Drive, Bella Vista, 2153, NSW
Telephone: 0408266713 / 02 8883 1369
Email: rob@foresight-analytics.com
Web: www.foresight-analytics.com
About Foresight Analytics
Foresight Analytics, an independent Sydney- based firm, provides investment ratings, data analytics, assurance 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 into the analyses of economies,markets, themes, investments products and portfolios. 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 Analytics & Ratings platform provides investment and operational due diligence ratings on both public and private market strategies. As a niche investment ratings house, Foresight Analytics & Ratings focuses on complex alternative investments, including domestic and international alternative credit.
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