How Manning managed risk in a tight credit market to deliver 9.40%

After a decade managing the Manning Monthly Income Fund, Josh Manning has seen plenty of market twists.

But FY25 stands out for one defining achievement: impeccable risk management in one of the tightest credit markets in decades, delivering a 9.40% return and topping the charts as the best-performing unlisted Australian fixed income strategy for the year.

Speaking with Livewire Markets, the Founder and Portfolio Manager of Manning Asset Management attributes this success to discipline in managing risks, sound decision-making, and a focus on capital stability.

“What’s really important is the discipline in the investment process, the governance around that, and the quality of the decision-making that’s been embedded throughout that time,” he says.

Watch the full interview with Manning or read the written summary below. Filmed on 5 August 2025.

The real challenge? Avoiding issues, not finding yield

Many investors assume that meeting a fixed income return target is hard. Manning disagrees.

“The misconception in this market is that getting the returns is difficult. We don’t actually think it’s about getting assets that meet that yield hurdle - it’s really about avoiding the issues, " he says.

In private credit, that means focusing on capital stability first, then delivering returns above the RBA cash rate. The fund targets RBA +5% net of fees, a benchmark it has met by screening rigorously and avoiding impairment.

Staying true to label

With private credit booming, Manning has taken a deliberately measured approach with respect to how much money it is willing to accept given the challenging credit environment.

“From a management philosophy, one thing we’ve really focused on over the last few years is coupling our growth ambitions and inflows with the availability of assets in our space that meet our risk hurdles," he says.

To protect investor outcomes, Manning has tapered inflows and remained highly selective, only participating in deals that meet the fund’s long-term return objectives.

“We’ve been taking a little bit of growth off the table and slowing that growth profile because it is a tight credit market; we're seeing some of the tightest public market credit pricing in over 20 years," he says.

This philosophy has helped deliver a higher rate of return for investors through less cash drag in the portfolio.

Caution in a capital-heavy environment

A major challenge in FY25 has been the sheer weight of capital entering the asset class, particularly from overseas investors.

“That increased weight of capital coming into the sector is pushing pricing down and valuations up,” he says.

“And you can see spreads sort of normalise back to long-term averages, which - if you buy them at tight levels - will result in obviously negative or very low returns for a period of time.”

Given this backdrop, and the fund’s focus on capital stability, Manning is being more prudent around the assets the fund purchases, avoiding deals that offer poor relative value.

Portfolio positioning: steering clear of the consumer

Consumer credit remains an area of caution for Manning’s team, as they anticipate potential headwinds in the jobs market.

“We do still have a relatively conservative view on the consumer and we don’t think that risk has necessarily subsided," he says.

Instead, the fund prefers secured assets, such as mortgages or business loans backed by critical equipment, offering greater protection in uncertain times.

“We do prefer, in these more uncertain times, loans where there is a hard asset backing - in the form of a property such as mortgages, or a business loan where it’s typically some piece of business-critical equipment that we are indirectly financing through a lender," says Manning.

How this strategy fits in a portfolio

For income-focused investors or model portfolios, Manning says the fund is not a one-size-fits-all solution — but it can play an important role for those seeking high yields and capital stability, in exchange for an illiquidity premium.

“This isn’t the sort of fund where you put 100% of your assets into it. There is a degree of illiquidity, and you are getting paid, I think, quite handsomely for that," he says.

Amid increased choice and heightened regulatory scrutiny in private markets, Manning encourages investors and advisers to evaluate how experienced the fund manager truly is, and how they manage their strategy's liquidity profile and the quality of their book.

“Just because somebody’s worked in a bank before doesn’t mean they have deep credit expertise. What you want to find is investment teams who have long track records in doing exactly what that fund is doing," he says.