The Manning Monthly Income Fund delivered +0.72% in May, 8.50% over 12 months and 9.18% annualised over three years. Since inception, the Fund has delivered an annualised return of 7.34%, continuing to exceed its objective of net returns of over 5% above the RBA cash rate.
Discipline Is Being Rewarded
Much of the discussion surrounding credit over the past two years has focused on the significant amount of capital that has flowed into the asset class. While strong investor demand is often viewed positively, periods of abundant liquidity can also create their own challenges. When capital is readily available, competition for transactions typically increases, pricing tightens and lending terms can become increasingly borrower friendly.
In contrast, more balanced markets often create better conditions for disciplined credit investors.
As capital becomes more selective and competition moderates, there is generally less pressure on lenders and funding providers to compromise on structure, pricing or credit protections. Historically, some of the most attractive lending vintages have emerged during periods where capital remains available, but is deployed more selectively and with greater regard for risk. From our perspective, this is increasingly what we are seeing today. Existing transactions continue to broadly perform as expected, while the environment for new deployment has become progressively more attractive.
Portfolio Performance Remains Consistent
Importantly, this improvement in opportunity is not being accompanied by any deterioration in underlying portfolio performance. Lenders continue to draw under existing facilities and repayment activity remains consistent with expectations. Across the portfolio, we have not observed any material change in borrower behaviour, arrears, collateral quality or underlying asset performance.
The Quality of Opportunity Is Improving
While existing portfolio performance remains stable, the opportunity set for new deployment is becoming more attractive. For much of the past 12 to 18 months, strong inflows into credit created a highly competitive funding environment. In most parts of the market, this resulted in tighter pricing, weaker covenants and pressure on managers to deploy capital. When capital is abundant, borrowers and originators are often able to negotiate terms that are less favourable to investors, particularly where funding providers are competing to maintain deployment.
That dynamic is now beginning to reverse.
As capital becomes more selective and some funds reduce their participation, the balance of negotiation is shifting back toward reliable, long-term capital partners. We are starting see this not only through improved pricing, but also through the ability to negotiate stronger structures. This includes more conservative advance rates, tighter eligibility criteria, enhanced arrears triggers, stronger reporting requirements and more robust cashflow controls.
For credit investors, this is the more important point. Better terms do not simply mean higher returns. They can also mean better credit quality, stronger downside protection and more attractive transaction entry points. In other words, the improvement is not just in the income profile of new transactions, but in the quality of the risk being taken to generate that income.
Periods where portfolio economics and credit protections improve together are relatively uncommon. They tend to occur when capital is more discerning, competition is reduced and borrowers place greater value on certainty of execution. In those environments, disciplined capital is often able to achieve a better risk-adjusted return without moving up the risk curve.
Matching Scale With The Immediate Opportunity Set
This is also where the structure of a credit manager becomes increasingly important.
In periods of strong inflows, scale can appear to be an obvious advantage. Larger pools of capital provide greater funding capacity and allow managers to participate in larger transactions. However, in credit, scale must ultimately be matched by the availability of opportunities that meet the manager's risk and return requirements.
When capital grows faster than the relevant opportunity set, managers can face increasing pressure to deploy. This can lead to participation in larger transactions, broader mandates or structures where there is less direct engagement with the underlying lender and reduced visibility over asset performance.
The challenge is not necessarily the size of the transaction itself. Rather, it is that larger and more widely syndicated transactions can reduce alignment, limit influence over transaction terms and increase the distance between investors and the underlying source of credit performance.
The Fund continues to focus on a narrower segment of the market where we can partner with a select group of high-quality non-bank lenders and act as a meaningful funding provider. In many cases, this allows us to negotiate transaction specific protections, maintain close visibility over portfolio performance and work directly with counterparties as conditions evolve.
This approach can mean managing capacity carefully and allowing deployment to occur in line with suitable opportunities rather than investor demand alone. We view this as a strength. Credit markets do not reward capital simply for being available. They reward discipline in determining when capital should be deployed, on what terms and with what protections.
Our focus remains unchanged: to deliver a high level of monthly income while targeting capital preservation through disciplined deployment, active monitoring and conservatively structured asset-backed credit exposures.
