Growing interest in private credit, which mirrors investor desire to diversify beyond the highly volatile equity markets, has by default thrown the spotlight on syndicated loans, which are commonly used to fund large merger and acquisition transactions.
What’s also attracting high net wealth investors to the broader private credit sector is the lure of higher returns, diversification and greater certainty of stable income.
What are syndicated loans?
Similar to bonds, syndicated loans are debt obligations of the relevant borrower/issuer and pay periodic interest payments to investors.
However, unlike bonds, they tend to have shorter investment time frames and are held in a bare trust on behalf of investors.
While the private credit sector is regularly criticised for being too high risk for everyday mum and dad investors, syndicated term loans are often of the highest quality credits supported by some of Australasia’s largest debt investors.
Notable uplift
Looking back over the last three years, Sean Sykes, Commonwealth Bank’s Head of Loan Markets Origination, has witnessed a noticeable uplift in syndicated loan activity among onshore and offshore banks and non-bank investors keen to add Australian credit to their portfolios.
During 2023 alone, Sykes’ team led more than $12.5 billion in Asian term loan (ATL) and institutional term loan (ITL) issuance on behalf of Australian borrowers.
This saw 93 banks and non-bank institutional investors from over 15 global jurisdictions participate in these transactions.
This included Qantas’ 10-year ATL, where Commonwealth Bank acted as lead arranger and bookrunner for the deal.
ASX-listed IAM targets HNW investors
Admittedly, this end of the market tends to be the domain of professional investors with minimum ticket sizes of $10-$20 million.
However, ASX-listed Income Asset Management (ASX: IAM) is one entity offering (private wholesale) high-net-worth investors access to large, senior secured syndicated loans to corporates with strong assets, cash flows, and equity.
By participating in $20 million portions of $500 million bank-funded term loans, IAM ensures access to high-quality credit while benefiting from the due diligence and post-issuance surveillance that’s carried out by major banks.
Here in Australia, a significant proportion of home loans, auto loans, trade receivables, personal loans and many other receivables are funded through these markets.
Two syndicated loan offerings
IAM currently has two live institutional senior secured loan transactions, both offering superior returns compared to publicly traded fixed-income securities.
It’s understood these opportunities also provide enhanced downside protection through stronger covenants and structural advantages.
For something completely different, last year Industry Super Property Trust (ISPT) issued a $1.5 billion sustainability linked syndicated term loan, one of the largest for any Australian real estate fund manager.
The $1.5 billion facility was split evenly across 5- and 7-year tenors, with 20 lenders participating in the transaction.
Based on Reserve Bank (RBA) data, since 2010, around 1,200 Australian firms have contracted syndicated loans.
One of the benefits of syndication is that it allows lenders to share the credit risk of a large loan and avoid excessive exposure to a single borrower or industry.
Managed account with syndicated loan access
Earlier this month IAM launched a new managed account providing wholesale investors with access to the institutional corporate syndicated loan market.
The offering provides private clients, SMSF investors, and financial advisers diversified exposure to high-quality debt with stable yields comparable to maturing ASX-listed hybrids.
“With billions in ASX-listed hybrids maturing in the coming years, investors are searching for alternatives that offer similar yields but better diversification," Jenna Hayes, head of sales capital markets at IAM said.
"Our managed accounts can provide that, with the added benefit of institutional-style creditor protections that simply don't exist in the retail hybrid market.”
NHW investors access insto markets
Haynes reminds investors that syndicated loans are a lender-friendly asset class, supported by the deep expertise of major banks, and provide an opportunity for wholesale investors to access a market typically reserved for institutions.
The managed accounts require a minimum investment of $250,000 and typically hold between 10 to 15 carefully selected debt issuances, offering investors an attractive alternative to traditional private credit funds.
Unlike private credit funds, which often concentrate on property-backed lending, Haynes also advises investors that IAM’s managed accounts provide exposure to corporate debt, reducing concentration risk while maintaining attractive yields.
“We are trying to focus on high-quality syndicated loans, so you are getting those high-yields that investors are often looking for but without sacrificing credit quality or covenants,” Hayes said.
“With billions in ASX-listed hybrids maturing in the coming years, investors are searching for alternatives that offer similar yields but better diversification,” said Hayes.
Record growth for MAs
The launch of IAM’s new managed account follows State Street Global Advisors and Investment Trends' recent report, which reveals that close to 60% of Australian advisers are now using MAs.
According to the SPDR ETFs/Investment Trends Managed Accounts Report, the number of advisers using MAs has tripled from 20% a decade ago.
The sector has also seen record-breaking growth, according to data from the Institute of Managed Account Professionals, with assets increasing 23.2% to $233 billion in 2024.
