Unlisted assets: their role in the new world order
Finding value in today’s market can be challenging Australian Yields Index Forward P/E Ratios 12% 45 40 10% 35 8% 30 6% 25 4% 20 15 2% 10 0% 5 -2% 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Dec-18 RBA Cash 3Yr CGS 3 Yr Non-Fin Corp (BBB) ASX 200 S&P 500 NASDAQ Source: Schroders, Bloomberg.
3 COVID-19 impacts on private equity Categorising company risk Company category Description Mitigation measures during crisis “Anti - fragile” companies Companies that benefit from the current situation Growth acceleration Robust companies Companies that will demonstrate robustness with Heightened risk management regard to revenues and profitability, but might experience a valuation decline driven by market comparables Fragile companies Companies that will experience some level of revenue Cost reductions and profitability impact, but have no or low financing risks Companies with permanent Companies that will require some type of additional Cost reductions, additional financing impairment risk financing to support their business during this measures situation
Priv ivate equity may offer broader opportunities EV/EBITDA purchase price multiples 20.0x 18.0x 16.0x 14.0x 6.5x 12.0x 10.0x 3.4x 8.0x 6.0x 4.0x 29/06/2007 30/06/2008 30/06/2009 30/06/2010 30/06/2011 29/06/2012 28/06/2013 30/06/2014 30/06/2015 30/06/2016 30/06/2017 29/06/2018 28/06/2019 30/06/2020 S&P 500 Large buyouts US Small buyouts US Source: Baird 2019, S&P 2019, Schroders, 2020.
Small funds can offer compelling returns IRR by fund size 50 40 30 20 IRR (%) 10 0 <$250m $251-500m $501-1000m $1000m+ -10 -20 Top 5% Top quartile Median Bottom quartile Bottom 5% Past performance is not a reliable indicator of future performance. Source: Schroders, Burgiss, August 2020. IRR data from Jan 2000 - March 2020 from fund vintages between 2000-2016.
1 Low growth/low real interest rate environment Five macro for Fiv orces sh shap apin ing priv rivate 2 Pockets of high growth in Asia equity opportunitie op ies for 3 Phase of deglobalisation the next th xt decade 4 Changing consumption patterns 5 Technology disruption Source: Schroders. 6
7 COVID-19 impacts on private debt The local experience of a global pandemic. How have private debt markets navigated COVID- 19? Source: Schroders, ANZ.
Widening of corporate spreads Notes: 1. For each name, bubble size represents the volume of the new transaction. 2. Credit rating is based on external rating or the equivalent of ANZ’s internal rating Source: LoanConnector, ANZ Information
Australian private debt - where is the opportunity? 5-year mid-range All-in Yield for non-leveraged loans Opportunity 500 Bank sweet spot 450 400 350 300 250 200 150 100 BBB- BB+ BB BB- B+ B B- Higher capital charges for Banks, lower desire to hold, pivot towards O&D Pre-C19 Early C19 Normalised Post C19 Source: survey of key market participants, illustrative only. Pricing can depend on multiple factors including size of deal/syndicate, activity (ie: M&A), and security provided. Upfront fees attributable to a refinancing of existing debt (not a new deal).
Five killer facts Things you need to know in order to successfully invest in private debt Experience and resilience Cash repays debt, not Model downsides. Risk vs. Reward. Dynamic security Rinse. Repeat are the keys or grid-based pricing particularly for volatile to success industries Careful asset selection is crucial Experience through the cycle is to avoiding NPL critical for success
Disclaimer This presentation has been issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders) and is intended only for professional investors. The purpose of this presentation is to present information relating to potential strategies only, and not to promote any Schroders funds. Information relating to Schroders funds contained within this presentation is for illustrative purposes only. This presentation does not contain and should not be taken as containing any financial product advice or financial product recommendations. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this presentation or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this presentation or any other person. Total returns are calculated using exit price to exit price, after fees and expenses, and assuming reinvestment of income. Gross returns are calculated using exit price to exit price and are gross of fees and expenses. The repayment of capital and performance in any of the detailed funds are not guaranteed by Schroders or any company in the Schroders Group. Returns shown are before tax and fees and all income is reinvested. You should note that past performance is not a reliable indicator of future performance. Opinions constitute our judgement at the time of issue and are subject to change. Schroders may record and monitor telephone calls for security, training and compliance purposes. Investment guidelines represented are internal only and are subject to change without notice. Third party data including MSCI data is owned by the applicable third party identified in the presentation and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments or products or any indices. Such data is provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. The terms of the third party’s specific disclaimers, if an y, are set forth in the Important Information section at www.schroders.com.au. 11
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