Oceana Funds – Key Details
Profile date: May 2024
Manager: Oceana Funds
Fund: Oceana Australian Fixed Income Trust
Fund Type: Wholesale Unlisted Fund
Asset Class: Fixed Income
Investment Strategy: The Fund focuses on trade and debtor finance, as well as a small SME lending and private credit component.
Affluence Exposure: The Oceana Australian Fixed Income Trust is a core investment investment in the Affluence Income Trust.
What does Oceana Management do?
Oceana Management is a boutique private credit manager based in Sydney. They specialise in trade and debtor finance.
What is the Oceana Australian Fixed Income Trust?
As at March 2024, the Trust was over $1 billion in size and comprised the following strategies:
- Trade and debtor financing – 66%
- Secured private lending – 18%
- SME lending – 2%
- Cash – 15%
Trade and Debtor Finance
Trade and debtor finance is a line of credit that is used to fund invoiced amounts receivable by a supplier of goods or services. The funding allows the supplier to minimise working capital by receiving payment for invoices earlier than they normally would.
As an example, a banana supplier may use this funding when delivering their produce to Woolworths. Woolworths terms of payment may be 90-120 days, which is a long time for the producer to wait to be paid after delivering their product. They can use debtor finance funding to get paid within 30 days and thus support their working capital.
Oceana have extensive systems in place to ensure delivery of the produce has occurred. Oceana control the invoicing and can even receive the payment direct from Woolworths. This means that some of Oceana’s largest debtors are highly rated entities such as supermarkets and other large retailers.
This process and funding can only occur because of Oceana’s extensive technology platforms, which have been developed over many years. At any given time, the technology platforms manage and originate thousands of individual loans.
Secured Private Lending
This is typical private credit lending. This is purpose based structural financial solutions supported by physical security.
SME Lending
These are smaller loans ($10-$50k) to small and medium businesses. These are the highest returning and highest risk loans in the portfolio, but they make a very small component.
How is the Oceana Australian Fixed Income Trust Structured?
Investing in the Fund is through a securitised structure, whereby investors can choose from A, B or C Notes that offer different levels of return and risk.
The highest ranking are A Notes, which currently comprise 77% of the Fund. These A Notes benefit from the subordination of the B and C Notes, as well as the originators’ equity. Therefore, for A Noteholders to lose any capital, the Fund would need to suffer at least a 23% loss, as the B and C Notes, plus equity would take the first losses. This is also true for interest payments, with A Notes being paid first, then B Notes, and so on.
The A Notes also benefit from trade credit insurance from a major insurer, which further enhances the underlying credit profile of the investment.
The Affluence Income Trust is mainly invested in the A Notes, with a small holding in the B Notes. The notes are notionally structured as fixed 5 year instruments. However, we have the choice to redeem these notes earlier if required.
- A Notes – Fixed 8.5% per annum.
- B Notes – Fixed 10.0% per annum.
Why we like the Oceana Australian Fixed Income Trust
We believe that the main strategy, trade and debtor finance, is an excellent risk adjusted opportunity given Oceana’s technology platform and management capabilities. The major debtors are high quality corporates, and the process Oceana uses minimises the risks of losses. Further, the trade credit insurance and securitised structure provide further credit enhancements, particularly to A and B Noteholders.
This is an institutional quality product. One of the major investors in the strategy is a leading global alternatives manager, and Oceana are continuing to attract new institutional investors.
Our core holding in the A Notes and our smaller position in the B Notes provide excellent risk adjusted returns of 8.5% per annum and 10% per annum respectively.
We hope that was helpful.
To learn more about the Affluence Income Trust, you can visit the Fund Page here
If you enjoyed this Fund Manager Profile, you can view our April 2024 profile here
If you would like to read more about Opportunities in Fixed Income, you can read it here
Disclaimer
Affluence Funds Management Limited (Affluence) has prepared this fund profile. It was prepared to assist investors in various Affluence funds in understanding the investments of the relevant Affluence fund in more detail. It is not an investment recommendation. Prospective investors are not to construe the contents of this article as tax, legal or investment advice. Neither the information nor any opinion expressed constitutes an offer by Affluence, its subsidiaries, associates or any of their respective officers, employees, agents or advisers to buy or sell any financial products nor the provision of any product advice or service.
This Fund Profile does not take into account your objectives, financial situation or needs. In deciding whether to acquire or continue to hold an investment in any financial product, you should consider the relevant disclosure documents for that product, which are available from the product provider. Affluence recommends you consult your professional adviser before making any decision to invest.
