How to beat inflation with private debt

Sara Allen

Livewire Markets

After more than a decade of record-low interest rates globally, the current environment of rising inflation and interest rates is coming as a shock for many investors, especially those in fixed interest. While some investors may be racing towards strategies such as alternative duration bonds, Urs Wietlisbach, co-founder at Partners Group, believes the answer is private debt.

“In this environment where we have increased interest rates, a long-term bond, a 10 year bond doesn’t make sense because the valuation will drop. Private markets are all based on floating rates, so this is great. It even helps us on the returns.”

The combination of the current environment and increased retail investor demand has led Partners Group to launch the Partners Group Global Income Fund - Unlisted. The strategy holds about 250 senior loans in it according to Wietlisbach and is less dependent on market rates.

In this edition of Expert Insights, Wietlisbach explores how the current environment is actually beneficial to private debt markets and discusses the strategy behind the newly launched Partners Group Global Income Fund - Unlisted.

Key take-outs:

  • The value of longer dated bonds drops in periods of rising interest rates making it more challenging for investors to generate yield on price.
  • Private markets are based on floating rates which means rising interest rates can help returns.
  • The Partners Group Global Income Fund - Unlisted is based on their existing listed fund and holds about 250 senior loans.

Edited transcript

Why do you advocate private debt over traditional bond markets?

In this environment where we have increased interest rates environment, a long-term bond, 10-year bond doesn't make sense because the valuation will drop. And the private markets is all based on floating rates, so this is actually great. It even helps us on the returns.

What is the outlook for private debt markets in the next six months?

I think private debt will grow further. The reason is increased interest rates, and private debt is always based on floating rates. So increased interest rates are actually helpful for pricing on a floating rate basis.

Has the market outlook influenced your decision to launch the Partners Group Global Income Fund - Unlisted?

People look today for yielding income. We had this listed vehicle who has done very well, RBA plus 4%. We promised, and we have delivered, even over delivered a little bit. But the unlisted version is actually less dependent on market pricing on a day-to-day. And there is a lot of deal flow available on a global basis on senior loans. And we think it makes a lot of sense for investors to come in.

Can you give more detail on the strategy for the new fund?

This fund is very broadly diversified. We will have about 250 different senior loans in it. We are focusing on non-cyclical businesses. So our track record shows it. I mean, we have, on the listed side, we are an RBA plus 4%. We promised, we over delivered. We are RBA plus 4% plus a little bit more. And the same thing you can expect now on this evergreen structure. It's an interesting place to be. You have a yield every month, 0.3% came in. That's not bad.

Learn more about Partners Group Australia

Partners Group are one of the largest private markets investment managers in the world. They have recently launched the Global Income Fund - Unlisted in Australia. To learn more, please visit their website.

Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for Partners Group Global Income Fund and Partners Group Global Income Fund - Unlisted. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This document has been prepared by Partners Group Private Markets (Australia) Pty Ltd ACN 624 981 282 AFSL 509285 (“PGA”), to provide you with general information only. In preparing this document, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither PGA, Equity Trustees nor any of its related parties, their employees or directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product. The advice provided in this document is provided by PGA. Any advice provided is general financial product advice only and does not take into account your objectives, financial situation or needs. Before acting on the advice, you should consider how appropriate it is having regard to your objectives, financial situation and needs. You should consider the product disclosure statement for the fund, and consider talking to a financial adviser before making a decision to invest in, or continuing to hold, interests in the fund. Interests in the fund are issued by Equity Trustees. The product disclosure statement for the fund is available at PGA can be contacted via PGA can be contacted via PGA has been appointed as the investment manager and the promoter of the interests in the Partners Group Global Income Fund and Partners Group Global Income Fund – Unlisted by Equity Trustees in its capacity as responsible entity of the Partners Group Global Income Fund and Partners Group Global Income Fund - Unlisted. PGA may receive fees in those roles. These fees will generally be calculated as a percentage of the funds under management within the Partners Group Global Income Fund - Unlisted. See the Fees and Other Costs section of the PDS for further information about the management fee charged by the investment manager. You may request particulars of the fees that are paid to PGA and its related companies within a reasonable time of receiving the advice contained in this document. The Partners Group Global Income Fund – Unlisted's Target Market Determination is available A Target Market Determination is a document which is required to be made available from 5 October 2021. It describes who this financial product is likely to be appropriate for (i.e. the target market), and any conditions around how the product can be distributed to investors. It also describes the events or circumstances where the Target Market Determination for this financial product may need to be reviewed. Note: all references in this document to Portfolio refers to the portfolio of investments within the PG Global Income Investments Loan Strategy Designated Activity Company ("DAC"). Partners Group Global Income Fund and Partners Group Global Income Fund - Unlisted invest directly into the DAC providing indirect exposure to the Portfolio attributes detailed in this document.

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Sara Allen
Content Editor
Livewire Markets

Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and...

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