MA Financial: ‘Delivering deep financial and operational expertise’

What can MA Financial Group offer to ultra-high-net-worth multi-generational families?
We offer investment solutions for institutional, wholesale and retail investors across a range of global alternative assets classes including private credit, core and operating real estate, private equity and venture capital. We also manage traditional asset classes including equities, bonds, and cash.

Our investment teams have diverse skillsets and experience across a range of strategies and market conditions and are focused on delivering long-term growth. We seek opportunities based on sound market fundamentals, investing with discipline and rigour.

We are active managers. We directly operate and manage many of our real estate and hospitality assets, including hotels, marinas, and shopping centres. We originate and manage many of the loans in our credit funds. 

We believe in-house, hands-on management and expertise results in better risk management and stronger long-term performance of the assets we own and manage on behalf of our clients.

Our conviction runs deep and as testament to this we co-invest in many of our strategies alongside our clients, aligning our interests with theirs.

Can you talk a little about the background of the firm? 
MA Financial Group is a global alternative asset manager specialising in private credit, real estate and hospitality. We lend to property, corporate and specialty finance sectors and provide corporate advice.

We have a team of over 600 professionals across locations in Australia, China, Hong Kong, New Zealand, Singapore and the United States.

We commenced operations in Australia in 2009 as a corporate advisory business, Moelis & Company, in partnership with New York Stock Exchange-listed global investment bank Moelis & Company. We listed on the Australian Securities Exchange in 2017 and are now an ASX300-listed company. In 2021, we changed our name to MA Financial Group reflecting the significant broadening of our business activities beyond corporate advisory.

Our strategy is to deliver to our clients deep financial and operational expertise in the businesses we choose to grow through market cycles. We focus on building sustainable earnings growth through leveraging diversified sources of capital and a broad client base.

A key to our growth is employing great people and providing them a positive and inspiring environment in which to work. Our people are highly experienced and motivated. Critically, our people share a strong alignment with our clients and shareholders. MA Financial executives own approximately 40% of the company and co-invest in many of our managed funds, as does MA Financial itself.

How is the investment landscape looking in Australia? What should families be looking at? 
The 2024 outlook for the Australian economy is cautiously optimistic, with GDP growth expected to remain positive as inflation comes off its peak and the economy continues to adjust to higher interest rates and cost of credit.

It appears central banks have navigated the challenge of utilising interest rate levers to manage inflation. A soft economic landing is now the base case for most investors, and the Reserve Bank of Australia (RBA) is indicating the same, although higher interest rates will be a feature of the investment landscape as inflation pressures remain elevated.

The rate tightening cycle is probably not over everywhere, and history tells us market cycles often last longer than anticipated. More favourable inflation data suggests we are much closer to the end of the inflationary cycle than the beginning and further rate rises are unlikely in Australia.

Investors are seeking pockets of opportunity and defensive alternatives as they become increasingly comfortable with the diversification benefits of private market assets and the different risk/return and duration characteristics they can deliver. We favour resilient and defensive sectors including private credit and alternative real estate.

Private credit was the asset class of 2023. As interest rates rose rapidly, the returns on floating rate debt trended towards a range of 8%–12% (on a net basis). These are equity-like returns, in an asset class more senior in the capital structure, delivering investors with highly attractive returns relative to risk.

The opportunities in Australia for private lenders to finance the growing demand for real estate credit will continue over 2024 as they work to complement the major lenders in addressing the critical housing shortage. Sound market fundamentals, security through first lien mortgages and an experienced manager to assess underlying value and exit strategies will remain critical to success.

Buying opportunities not seen since the period following the 2008 global financial crisis are emerging in Australia’s accommodation hotel market. Market dislocation caused by substantial increases in construction costs and the disruption to the travel industry due to the global pandemic have resulted in the opportunity to acquire assets at a meaningful discount to replacement cost. Under the right operator with the right expertise and active management strategies offering scalable growth potential accommodation hotels are a compelling investment case.

We see significant buying opportunities in 2024 as some existing owners struggle to rebalance their capital structures with higher interest rates and lower valuations (and without access to new equity) and the convergence of surging population growth, strengthening tourism figures, broad-based demand drivers from corporate and leisure sectors and positive demand/supply market fundamentals.

Unique investment opportunities are also arising for specialised alternative real estate assets like marinas and pubs. Underpinned by positive supply/demand fundamentals, yields remain favourable relative to core real estate and the strength and recurring nature of revenue offers investors stable and durable income through a range of economic cycles.

Campden Wealth’s Asia-Pacific Family Office Report 2023 found that families in the region exceeded investment performance expectations in 2022. Despite the challenging economic landscape, 58% of family offices reported AUM growth, with 22% experiencing an increase of more than 10%. In your experience, what strategies did APAC family offices likely employ to successfully navigate this difficult period?

Investor interest in private market alternatives is near all-time highs, reflecting sustained demand for strategies offering income stability, downside capital protection and protection against rising rates [1].

A recent survey of allocation intentions of more than 800 global institutional investors shows real estate credit is in the top three choices for future allocation to private credit [2]. Defensive in nature with a relatively attractive, resilient return profile, by design real estate credit can be shielded from inflation. It can be an attractive through-the-cycle option for investors now both cyclically and structurally.

Assets that can deliver investors with inflation-adjusted income security and capital preservation are keenly sought.

As the cost of capital rises and liquidity flows out of the system, alternative non-bank lenders can capitalise on the greater risk premia of traditional asset classes and the unique properties of real estate credit.

Private credit has a historically low correlation to both listed equities and public market debt securities. It provides clear portfolio diversification benefits.

As a floating rate secured asset class, real estate first mortgage credit provides an inflationary hedge. Rate rises are passed through to investors as cash rates move higher. The payment of historically regular and stable income, adjusted for increases in the cash rate generates low return volatility [3].

In addition, a key factor in understanding real estate credit is its relative security compared to alternative investment options. In a secured lending facility, it is equity investors who occupy the first-loss position in the event of a decline in value of the underlying asset. Downside capital protection is provided to credit investors, any change in capital value less than the equity is not passed through, forming an equity shield and cushioning downside risk.

A final layer of income and capital security for real estate credit investors is the low level of loan defaults in the domestic lending market. Australia ranks in the world’s top ten for efficiency in enforcing contracts [4].

Private credit was the asset class of 2023. As interest rates rose rapidly, the returns on floating rate debt trended towards a range of 8%–12% (on a net basis). These are equity-like returns, in an asset class more senior in the capital structure, delivering investors with highly attractive returns relative to risk. A defensive asset class offering downside protection, real estate credit is well-positioned to take advantage of a rising interest rate environment and volatile financial markets. In the hands of an experienced manager with multi-cycle experience, it seeks to provide investors with a reliable income return adjusted for inflation.

Importantly, real estate credit offers the opportunity for capital protection via secure lending structures attached to the underlying investment, the first-ranking mortgage.

Equities constitute the largest asset class within the typical Asia-Pacific family office portfolio, making up 27% of the total, closely followed by private markets at 26%. Why are these classes still considered such a safe harbour?
The profound sustained and fundamental changes to the investment landscape is motivating investors of all types to reconsider how to protect and growth wealth and diversify outside the traditional public equity and debt markets.

Private credit offers investors the potential to preserve capital and generate resilient and regular income. It provides an opportunity to lend against high-quality assets with equity-like return upside, has low correlation to other asset classes and is a compelling and defensive floating-rate alternative option to cope with the future (however that plays out).

Lending outside the traditional banking sector or corporate bond market, private credit is generally considered a defensive asset offering capital protection due to its position in the secured debt section of the capital structure. It is a floating rate asset class, meaning returns are directly linked to the base cash rate, well-positioned to take advantage of volatile financial markets while at the same time offering a predictable income stream secured via contractual borrower agreements. 

Private credit offers greater investor control and protection due to the ability to engineer the level of seniority in the capital hierarchy or security pool of the lending company or asset (depending on the type of credit). It also offers a wide range of strategies, products, and access points for all types of investors.

For more information on MA Financial, click here.

About MA Financial Group’s real estate credit capabilities
We hold the largest footprint and market reach amongst our peer group being the only Australian credit investment business with market leading in-house workouts capabilities.

Our real estate credit funds provide investors income stability, downside capital security and protection against rising interest rates. Our real estate credit strategy has experienced significant AUM growth, with our flagship vehicle climbing 1,594% from a base of $100,000 five years ago. Over the 12 months to November 2023 alone AUM has risen by almost 50%.

Our suite of wholesale and retail funds provide local and global investors (including sovereign wealth funds, global foundations and life companies) exposure to a diversified portfolio of first mortgage loans only, secured by Australian residential and commercial property. The properties are located in metro areas or locations considered to have sufficient liquidity for an orderly sale. 

Differentiated capabilities, structure and management 
- We are a highly-regulated listed group operating in an unregulated market, providing investors certainty on adherence to market best standards compliance. 
- We have a unique offering allowing investors a choice between two underlying classes to suit different risk and return appetites. 
- Via our corporate advisory division, MA Moelis Australia, we hold the greatest market share in real estate and restructuring advice in the Australian market ensuring significant intellectual property is shared within the business regarding managing exposures.  
- Our lead Portfolio Managers (PMs) have multi-decade local and global experience in credit underwriting. We conduct extensive and rigorous due diligence when assessing loan opportunities including significant downside scenario analysis. Our credit process has been developed from the combined intellectual property of the PMs working across different market cycles and organisations. 
- We are true active managers. There are relatively few non-bank lenders with our depth of understanding of real estate investment and construction markets; have the capacity to lend (ie do not have to seek external capital after agreeing borrower terms); have an institutional management platform; and can respond to tight borrower timelines. The team are effective in understanding borrower risks and pressures operating in real estate markets and successful in being viewed as a trusted and responsible lender. Our ability to consistently and accurately price risk has resulted in our funds achieving target returns with nil losses since inception. 

[1] Q2 2022 Global Private Markets Fundraising Report, Pitchbook, www.pitchbook.com
[2] 10 considerations for building strategic allocations to alternative credit, Think EQuilibirium, Nuveen, www.nuveen.com. The survey asked respondents for their investment intentions over the next two years.
[3] Nuveen, 10 considerations for building strategic allocations to alternative credit, Think Equilibrium, www.nuveen.com 
[4] Australia ranks sixth in the Enforcing Contracts Rank, above Germany (#13), US (#17), New Zealand (#23) and the UK (#34). Source: The World Bank, Doing Business Archive, www.archive.doingbusiness.org