Chris Gosselin, CEO of Australian Fund Monitors, interviews Benjamin Harrison, Co-Founder and Chief Investment Officer at Altor Capital. Benjamin discusses the company's AltFi Income Fund, which has achieved a six-year average return of 12%. Benjamin explains the company's unusual approach as active credit managers, providing loans to growth-stage businesses while also being actively involved in those businesses.
Chris Gosselin: My name's Chris Gosselin from Australian Fund Monitors. Today I'm talking to Ben Harrison from Altor Capital. Ben is the Co-Founder and Chief Investment Officer of the Altor AltFi Income Fund, which provides loans to and invests in small- and medium-sized enterprises. Ben, welcome.
Benjamin Harrison: Thanks, Chris. It's great to be here. Thanks for having us.
Chris Gosselin: You've got a track record, which is now over five years, returning 12 per cent on average over that time. Last year returned over 15 per cent. Tell me more about it and how you do that and what you invest in.
Benjamin Harrison: Yeah. So, you're right, Chris. We've now got… it's actually six years of track record at 15 per cent for last year and 12 per cent since inception.
So, what we are is we're a private credit manager, and we focus on lending capital to corporates or what we call lower-market corporates, so those businesses that are generally in their growth phase. And we're delivering returns via two ways. Firstly, through the interest income that's attached to those loans and those facilities, so interest that we're charging those companies for borrowing the money, but also we're looking at delivering enhanced returns to investors through embedded equity that we're receiving, so free-attaching equity that we're receiving in those businesses as well.
So it's a combination of both of those is how we're delivering returns. And we're able to deliver a great return for investors given that we were able to realize, actually, one of those free-attaching equity instruments in the last 12 months, which has boosted the returns for investors.
Chris Gosselin: So that's where you differ from a traditional private credit fund or credit debt fund, is that you take an equity interest or can take an equity interest in the funds to whom you lend money to. Is that correct?
Benjamin Harrison: That's right. So, probably the key differentiator here is that we call ourselves an active credit manager. So, how we kind of think about the borrower is to be actively involved in that business and help them achieve their objectives. So, deploying capital to help them grow, but also if there's a corporate initiative or some objective they need to achieve, then we actually step in and get involved with the business, and that could be in an advisory capacity or sitting on the board as well.
And that really allows us to do two things. That's protect the downside. So, if we're actively involved with the business, then we can keep an eye on things and make sure we're seeing any potential issues and get in front of those. But we also like to prepare for the upside. So, if we can actually be actively involved with the business and the founders and the management team, help them achieve their objectives, then that creates value in the enterprise. And if we can get a free-attaching equity instrument as part of that and we can realise that equity instrument, then that delivers additional returns to our investors.
We're fortunate now we've been able to do that a number of times since the inception of the fund, and that's allowing us to generate additional returns. So, that is a key differentiator compared to other credit fund managers in the market.
Chris Gosselin: And what sectors are you lending to?
Benjamin Harrison: So, we're very big on lending to those businesses which have got very strong growth characteristics from an industry perspective. So, we're looking for businesses that have strong tailwinds, industry tailwinds behind them. And, again, that just provides the defensive characteristics that we think about when we're lending to these businesses. So, we're thinking about how can we add value, we're thinking about the industry, we're thinking about security, we're thinking about cashflow servicing.
So, all those sort of things go into the mixing bowl. But definitely industry is one very important thing we look for. And so they are industries like financial services, energy transition, healthcare, advanced manufacturing, waste management, industrial services. So, there's about six or seven industries that we're trying to target and looking at targeting, which is providing those defensive characteristics.
Chris Gosselin: And, on the other side of that, you avoid the cyclical areas, such as resources or property.
Benjamin Harrison: That's right. Yeah, correct. So, we don't invest in resources, we don't invest in property. So, we are pure corporate lender. We don't have property exposure, and that's important to our investors that we're very focused and have a very defined mandate around lending to corporates.
But we're also avoiding retail hospitality. So, anything that's cyclical in nature, we look to avoid and looking to enter those investments that have very strong tailwinds, which were just some the examples I gave earlier.
Chris Gosselin: Ben, as we mentioned earlier, there's been significant growth in the private credit sector. Some commentators are concerned that it's attracting too many new funds, early-stage managers. How do you see that playing out and is that affecting you?
Benjamin Harrison: Context is always really important, I guess, when you hear these things. And I think, for us, one of the really important key takeaways here is that private credit's still in its infancy in Australia compared to foreign markets. So, if you think about in a US setting and in the European setting, private credit plays a much bigger role in terms of lending to corporates and into property. So, what we're seeing in Australia here is really just us coming to a point where it's more normalised across the global setting.
In terms of the number of managers and in the sectors they're participating at, we haven't seen any real growth in those managers that are targeting corporates. They're probably more in the property space in terms of the number of managers that it's grown over the last couple of years.
And I think it's obviously really important that we've got a long track record. We've got, you know, over six years of track record now delivering consistent returns to investors. So, I think, from our perspective, it's easy to differentiate when we have had that long track record in the market.
Chris Gosselin: Ben, earlier this year, Altor became part of the listed Prime Financial Group (ASX:PFG). How do you see that impacting Altor and the fund's growth going forward?
Benjamin Harrison: Yeah. So we made the decision to partner with Prime Financial in February this year. Myself and Harley, my business partner, saw an amazing opportunity to partner with a diversified financial services business and really allow that business to bring to bear its capability to support Altor.
We've now been with the group for over six months. It's been a great experience, and we've been able to really leverage off, whether it's the support services that Prime can provide, the distribution capability that Prime can provide, but also the deal flow as well. So, Prime have got a capital advisory group, and they're bringing a lot of great opportunities into our universe that provide great opportunities for us to invest in.
So, it's been a great outcome. I think we've been able to maintain the small culture within Altor. We've maintained the brand, the investment committees, the process has all stayed the same, but we're getting those flow-on benefits from a larger parent company.
Chris Gosselin: Well, Ben, thank you for your time. I wish you all the best going forward. Your performance has been fantastic. You topped the ratings tables in the Fund Monitor's database over both one, three and five years. So, well done. We look forward to keeping in touch with you going forward.
Benjamin Harrison: Great. Thanks, Chris. Thanks for having me.
Chris Gosselin: Nice to speak with you.
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