Private credit, as the name suggests, can be a fairly opaque investment tool, and one which is hard to evelaute, given that a lot of the industry operates away from the public spotlight.
It can be a useful diversification option however, and one way to gain exposure to private credit is through investing in companies such as Pinnacle Investment Management Group Limited (ASX: PNI).
Macquarie also likes the look of Pinnacle at the current share price, but we'll get to that later.
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Strength through diversification
Pinnacle recently held its annual general meeting, and managing director Ian Macoun was positive about the outlook for the company.
Mr Macoun said the company had been focused on diversifying the business for some time.
As he said:
Whilst this can suppress earnings in the short-term, particularly in respect of Horizon 2 initiatives where we build new capabilities or affiliates, it serves to increase the robustness of our platform and provides further avenues for growth.
Mr Macoun said the company delivered a net profit for FY25 which was 49% up on the previous year, and over five years the company had delivered compound annual growth rates of more than 25%.
The flow outcome was also strong, with $23.1 billion of net inflows for the financial year, a record outcome. $18.1 billion was raised in globally domiciled affiliates; $6.7 billion was into alternative credit and $3.9 billion was into private credit markets, underscoring the benefits of the strategic expansion of our platform into global and alternative asset markets.
Shares looking cheap
Macquarie, in a research note published this week, said one of the difficulties in assessing companies which invested in private credit, was the lack of transparency.
In a bid to value Pinnacle more accurately, it has focused on one of its affiliates, Metrics, which publishes quarterly disclosures and which accounts for about 14% of Pinnacle's funds under management.
The Macquarie analysts said Metrics, which Pinnacle has a 33.6% stake in, has grown revenue by a compound rate of 42% over three years.
They went on to say:
Metrics is one of Pinnacle's key affiliates and has the potential to materially increase assets under management, and deliver operating leverage, driving upside to earnings expectations.
Factoring in the strength in affiliates such as Metrics, Macquarie has calculated a price target of $26.55 on Pinnacle shares, and incorporating dividends, is forecasting a total shareholder return over a year of 51.8%.
Pinnacle was valued at $3.99 billion at the close of trade on Wednesday. The company's shares were 1.4% higher at $17.79 on Thursday morning.
