The super funds’ collective willingness to pay inflated prices for bank shares is starting to make them look like outliers. With about 30 per cent collective ownership of the banks, APRA sees “stability risk” as a salient concern for all stakeholders that can’t be ignored.
The inertia that rules the retirement system means bigger ideas are needed if members are going to get the best outcome in retirement. And with millions set to retire in the next few years, time is of the essence.
‘We were ruthless’: KeyInvest gets serious on private credit manager selection and reporting
One of the criticisms private credit alarmists have about the sector is that it’s opaque, with disparate reporting standards and methods that obfuscate the inherent risks in the sector.
That’s only partly true, says KeyInvest chief executive Craig Brooke. While private credit providers have different methods of reporting, he says, they are nothing if not transparent.
The reason Brooke knows this is because the KeyInvest team has spent two years conducting and collating a review across the private credit sector, in order to produce reporting within the sector that is more homogenous and to improve transparency for investors.
During that time, he told The Inside Network’s James Dunn during a recent INDepth interview, the KeyInvest team found “openness, transparency and a willingness to share information”. While the information private credit teams provided about their operations, methods and results wasn’t homogenous, he says the point of the exercise was for KeyInvest to collate that information into something that was.
“We wanted to apply a set of credit-based due-diligence criteria to understand a best of best of breed that could be applied to something that our members and other investors are seeking,” Brooke explained.
Brooke says KeyInvest, which has over 50,000 members that are investors across its product suite of funeral bonds, life event bonds and wholesale investment products, started out looking at a broad slate of 300 or so private credit providers in Australia.
“We started with that number, just over 300, which is an incredible amount when you compare it to mainstream banks in the country,” he said. “We started working through, and the number one knockout question was ‘have you returned every dollar of investor capital from your fund to investors since inception?’ If yes, pass go. If no, stop.’
“We found that since inception, 82 had returned 100 per cent of capital to investors,” Brooke continued. “We then started to include 15 other criteria, which took us down to about 30 providers. We then started a qualitative piece of work and that 30 came down to 12 managers in the country. We were ruthless.”
The aggregation of data will provide a useful tool for financial advisers when it’s released, Brooke says.
“Advisers are great at conducting risk profiles and conducting needs analysis, and so we’ve been building some strategies that can align to the needs analysis an investor or adviser would undertake,” he said.
One thing that advisers can be certain of is the veracity of the KeyInvest study: asked by Dunn if he was tempted to include providers who only missed one criterion, Brooke replied in the negative.
“If there’s one gone, it’s gone,” he said. “I’m a 28-year, sceptical banker that has seen many different cycles, especially in credit, and when you’re working something out on behalf of investors you certainly don’t want that feeling.”
