Pacific Equity Partners Capital Solutions Fund (Australasia) – Research Review

October 30, 2023

Pacific Equity Partners Capital Solutions Fund (Australasia) (the “Fund”) is an unlisted unit trust available to Wholesale investors that provides exposure to a portfolio of loans/securities to mid-market corporates where their primary operations are in Australia and New Zealand. The Fund provides debt funding in the form of structured capital with protections that seek to minimise downside risk. The Trustee is Pacific Equity Partners Pty Limited and the Manager of the Fund is Pacific Equity Partners Capital Solutions Pty
Limited (“Capital Solutions” or the “Manager”). The Manager is under common control of the owners of the Trustee. Pacific Equity Partners Pty Limited (PEP) is an investment firm with a focus on private markets that was established in 1998. Historically PEP has been focused solely on the private equity market, however in recent years has expanded into infrastructure (Secure Assets) and private credit (Capital Solutions), with the firm seeking to leverage their processes, networks and experience to these markets.

Capital Solutions was established in March 2021, and has since committed over A$500 million of capital across 15 loans/securities. The Fund focuses on providing senior secured, variable rate loans however may also invest in partnership and syndicated loans and subordinated and structured securities. The Manager expects the long-term asset allocation of the Fund to be 70% senior secured loans and 30% asset-backed warehouse securities. The portfolio currently comprises 13 investments to 10 companies with 62% of committed capital allocated to senior secured loans and the remainder allocated to asset-backed warehouse facilities. Investments will typically range between $20 million and $100 million with the Fund focusing on loans/securities with a three to five year holding period. The Fund seeks to pay distributions on a quarterly basis that comprise the net income received by the Fund for the period. The Fund has a target return of 10%-12%p.a., comprised of a cash yield of 8%-10% and structured upside of 2%-4%, which is typically delivered through fees and paid-in-kind interest (capitalised interest). The Fund will seek to offer quarterly redemptions, however redemptions will be at the discretion of the Trustee and subject to the available liquidity of the Fund.

An investment in the Fund is suitable for Wholesale investors who are seeking to diversify their traditional fixed income investment portfolio with an investment that seeks to offer a regular quarterly income stream with low levels of capital volatility. With significant uncertainty in equity markets, the Fund provides an alternative investment that at current cash rate levels provides a return comparable to equities with lower volatility. While the Fund will offer low levels of capital volatility, an investment in the Fund is not without risks. Investors may experience a capital impairment in the event of a default of the contractual obligations of an investee company and where the Manager cannot recoup the full value of
the loan. While loans/securities will be structured to provide protection against capital loss, there is no guarantee that the Manager will be able to recoup the outstanding loan value in full. The underlying investments are illiquid. While there will be turnover in investments as loans are repaid, liquidity will be limited. The Fund seeks to offer liquidity on a quarterly basis with 30 days’ notice to provide the Manager with some ability to manage redemption requests, however the ability to meet redemption requests will be dependent on the levels of liquidity in the Fund and may take some time to satisfy. Given this, investors should have a long-term investment horizon and be aware that the ability to potentially redeem their investment in full may take time. The Fund seeks to pay distributions on a quarterly basis. Distributions will reflect the interest and fees paid by the loans in the portfolio at any given time. Given the focus on the floating rate loans/securities the distribution amount will vary throughout the market cycle.

This report is for Wholesale Investors only. To view the report click here.